When you apply to an IPO, it feels obvious that your money funds the company. In an offer for sale, none of it does. The shares already exist. The money goes to whoever owned them.
What is an Offer for Sale (OFS) in an IPO?
So what is offer for sale, and what is OFS, the short form in every offer document? Same answer. Existing shareholders sell shares they already hold. No new shares are created, and the company raises nothing.
The term also names a separate exchange window, introduced by SEBI
in 2012 for listed companies. This article covers the IPO component.
Also Read - New to IPO investing? Read our guide to understand what an IPO is and how it works before exploring an Offer for Sale.
How Does an Offer for Sale in an IPO Work?
Applying works as for any issue. You bid during the book building period, when price is set by investor demand inside a band. Funds are blocked by UPI mandate. Allotted shares reach your demat account, so open demat account with a SEBI registered broker first.
Settlement is where it differs. Money from the OFS portion goes to the sellers, who carry the offer expenses in proportion to what each sold. They cannot touch it until listing approvals arrive.
Who Can Sell Shares Through an Offer for Sale?
Promoters, promoter group entities, early investors such as private equity funds, and the Government of India in state owned companies. Buyers include mutual funds.
SEBI attaches a condition. The shares must be fully paid up, and held for a year before the draft offer document is filed. Government companies, statutory authorities and infrastructure special purpose vehicles are exempt from that year.
Difference Between Offer for Sale (OFS) and Fresh Issue
Feature | Offer for Sale | Fresh Issue |
Source of shares | Shares that already exist | Newly created shares |
Who gets the money | The selling shareholders | The company |
Effect on share count | No change | Rises |
Effect on existing holders | Ownership transfers | Ownership is diluted |
Usual purpose | Exit or stake reduction | Growth capital or debt repayment |
Most issues combine both. In a ₹1,000 crore issue split ₹400 crore fresh and ₹600 crore OFS, only ₹400 crore reaches the company.
Why Do Companies Include an Offer for Sale in an IPO?
Early backers who funded the business years ago need a route out.
Promoters may need to cut their holding to meet public shareholding requirements.
The Government of India uses the same route under its disinvestment programme. A company sitting on cash has little reason to issue new shares, so an ipo can be almost entirely secondary.
Advantages of an Offer for Sale in IPO
- No dilution, since no new shares are created.
- A larger free float, meaning shares freely tradable by the public, supports liquidity.
- Founders and early investors get a regulated exit, not a private one.
Disadvantages of an Offer for Sale
- The company receives nothing, so none of it funds expansion or repays debt.
- A large promoter sale invites a fair question about why insiders are selling now.
- Lock in periods expire in stages, adding supply later.
- Judging the issue is harder with no stated use of proceeds.
Should Investors Invest in an IPO That Has an Offer for Sale?
An OFS is not by itself a reason to apply, or to stay away. Nearly every large Indian listing has one.
Three questions do the work. How much of the issue is secondary? Who is selling, a founder or a fund near the end of its term? Does the business need capital it is not raising?
A fund exiting after ten years is ordinary. A promoter selling a large slice of their own holding in an indebted company deserves a look.
Ready to explore upcoming IPO opportunities? Apply in IPO and review the latest issues before making an informed investment decision.
Real Example of an Offer for Sale in IPO
The clearest Indian case is the Life Insurance Corporation of India issue of May 2022. It was a 100% OFS with no fresh issue.
The Government of India offered 22,13,74,920 shares, about 3.5% of equity, at ₹902 to ₹949, for an issue size near ₹20,557 crore. Bidding ran 4 to
9 May 2022, listing on 17 May. The corporation received none of it. Figures as on May 2022, from the offer documents.
Key Things to Check Before Investing in an OFS IPO
The offer document answers this in two places. The Offer states the fresh issue and OFS amounts separately. Objects of the Offer confirms the company gets nothing from the secondary portion.
Read three more lines. First, the lock in schedule. Minimum promoters contribution of 20% of post issue capital is locked in for 18 months, for issues opening after 1 April 2022. Holding above that minimum is locked for six months. That signals when more supply may appear.
Second, the selling shareholder list, naming who exits and by how much. Third, the general corporate purposes figure, capped at 25% of the amount raised. A high number means less of the fresh issue is tied to anything specific.
After listing, the shares trade like any stock through equity trading. Brokerage at Indiabulls Securities is 2.5% or ₹11 per executed order, whichever is lower, in NSE (CM, FO, CD), BSE (CM, FO) and MCX.
Conclusion
Treat the OFS line as information, not a verdict. Open the offer document, find the split, then read it next to who is selling.
An issue that is mostly secondary is not automatically weaker. It does mean you are backing the business as it stands, not a funded plan.