A private company, when in need of money, comes up with an IPO (Initial Public Offering). The company sells a portion of its shareholding to outside investors to get funds. The companies are majorly in need of money for expansion and future plans.
But the funding requirement doesn’t end with an IPO. At times, the company may require additional funds for various reasons. In such times OFS comes to the rescue. In this article, we will try to understand OFS in detail.
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OFS stands for Offer for Sale. It's an easy way for promoters of the company to reduce their stake in the company by selling a part of their shareholding on stock exchange platforms. India’s securities regulator SEBI brought the OFS mechanism in 2012. This was done so that the publicly traded companies could reduce their holdings to follow minimum public shareholdings norms.
This method has become very popular among listed companies, which include private and state-owned companies. This was with the purpose of complying with SEBI orders. OFS was later on even used by the government to sell its shares in public sector companies.
The process of OFS is quite simple and easy. Let’s understand how it operates: -
Two types of investors can invest in OFS. One is retail investors, and another is Institutional Investors.
Investors who invest in OFS fall into a retail category if their total bid value doesn’t exceed Rs 2 lakh.
Investors who invest in OFS fall into the institutional investor's category if their total bid value exceeds 2 lakh rupees. These institutional investors can be mutual fund companies, insurance companies, foreign institutional investors, and pension funds.
There are certain rules and regulations set by SEBI for OFS. Let’s understand them: -
When retail investors buy the shares through OFS, they are offered a discount on the floor price. This discount is near to 5%.
OFS process runs on the system. So, there is minimum paperwork.
OFS transactions don’t attract any extra charges. Only regular transaction charges and STT are levied.
OFS is an easy way for promoters to reduce their shareholding in the company. If you are an investor planning to buy the shares offered through OFS, then this article will be very helpful to you. It gives in-depth knowledge about OFS.