What is OFS in Share Market? | OFS Meaning, Process & Rules

Ever scrolled through stock market news and spotted a headline saying “OFS opens tomorrow” and thought, what is OFS in share market actually? You’re not alone! Many new investors encounter this term but are unsure what it truly means or how it affects them.

In this blog, we’ll break down everything about OFS (Offer for Sale) in the share market in simple language. You’ll learn what it means, how it works, and why companies choose this method to sell their shares.

OFS Meaning in Share Market

OFS, or Offer for Sale, is a mechanism in the share market that allows promoters and large shareholders of a listed company to sell their shares to the public through the stock exchange platform. The primary purpose of OFS in the share market is to enable promoters to reduce their holdings and meet regulatory requirements while ensuring transparency and equal opportunity for investors.

Introduced by the Securities and Exchange Board of India (SEBI) in 2012, the OFS system was designed to make the share sale process quicker and more efficient. Unlike an IPO (Initial Public Offering), no new shares are issued during an OFS. Instead, existing shares held by promoters are offered to investors, including retail and institutional participants

How Does an Offer for Sale Work?

The OFS process is a structured and transparent method that allows promoters or large shareholders to sell their holdings through the stock exchanges, primarily NSE and BSE. It follows a systematic, time-bound procedure under the supervision of SEBI to ensure fairness for all investors.

1. Announcement of the OFS: The company first informs the stock exchanges about its decision to conduct an Offer for Sale. This announcement usually includes details such as the name of the seller (promoter or shareholder), total number of shares being offered, and the date of the OFS. The exchanges then issue a public notice for investor awareness.
   
2. Setting the Floor Price: The seller sets a floor price, which is the minimum price per share at which bids can be placed. This price is often disclosed one day before the offer opens. Retail investors may also receive a small discount on this price as an added benefit.
   
3. OFS Opens for Bidding: The OFS is generally open for one trading day. Institutional investors such as mutual funds, insurance companies, and foreign investors can bid in the first half of the day, while retail investors participate in the second half. Investors can place bids through their brokers, just like regular stock market transactions.
   
4. Bidding and Allocation Process: Investors submit their bids within the offer window, indicating how many shares they want and the price they are willing to pay. Once the bidding closes, the exchange’s system matches the bids starting from the highest price down to the floor price until all available shares are allocated.
   
5. Post-Offer Settlement: After allocation, successful bidders receive shares directly into their demat accounts, and the payment is automatically settled. The entire process is completed within T+1 day, making OFS one of the fastest and most efficient share sale methods in the Indian stock market.

Example of OFS

In January 2015, the Government of India offered nearly 10% of its Coal India equity stake, amounting to over 63 crore shares, through the OFS route on the NSE and BSE. The floor price was set at ₹358 per share, and the offer was open for just one trading day. The response was overwhelming, the issue was oversubscribed by more than 1.1 times, reflecting strong investor interest.

Retail investors were offered a 5% discount on the final issue price, which encouraged greater participation from individual buyers. The total proceeds from this OFS crossed ₹22,500 crore, making it one of the largest share sale programs in India’s capital market history.

Features of Offer for Sale

1. Transparent Process: The entire OFS in share market process takes place through the stock exchange platform, ensuring complete transparency. Every investor, whether institutional or retail, gets access to the same price information and bidding system.
   
2. Quick and Time-Bound Execution: One of the main advantages of the OFS process is its speed. The offer typically remains open for just one trading day, and the settlement of shares is completed within T+1 working day, making it faster than other fundraising options like IPOs or FPOs.
   
3. Eligible Sellers: Only promoters or shareholders holding at least 10% of the company’s share capital can offer shares through an OFS. This ensures that only major stakeholders use this route.
   
4. Investor Participation: Both institutional and retail investors can participate in an OFS. A minimum of 10% of the offer size is reserved for retail investors, encouraging wider participation.
   
5. No Fresh Issue of Shares: In an OFS, the company does not issue new shares. Instead, existing shares held by promoters are sold to other investors

How to Apply for an OFS: Step-by-Step Guide for Retail Investors

Participating in an Offer for Sale (OFS) is simple and convenient when you do it through a reliable stockbroker like Lakshmishree. Unlike IPOs or other investment methods, there’s no lengthy paperwork involved.

1. Check for Upcoming OFS Announcements: Stay updated with the latest OFS opportunities listed on the NSE and BSE websites. You can also follow Lakshmishree’s official Instagram page for regular OFS updates, announcements, and participation alerts.
   
2. Contact Lakshmishree to Apply: To participate in any OFS, you need to call our dedicated team at 0542-6600080. Our experts will help you with the bidding process, confirm the floor price, and guide you on the steps to place your order.
   
3. Provide Your Bidding Details: Please inform our team about the number of shares you wish to purchase and your preferred bidding price.
   
4. Await Allocation Confirmation: Once the OFS bidding closes, the shares are allotted based on demand and bid price. Successful bidders will receive their shares directly in their demat account on the next trading day (T+1 settlement).

Rules of OFS

Below are the most important rules of OFS in the share market that both companies and investors should know:

1. Eligibility of Companies: Only the top 200 listed companies (based on market capitalisation) are eligible to use the OFS route.
2. Eligible Sellers: Only promoters or shareholders holding at least 10% of the company’s share capital can offer their shares through OFS.
3. Offer Duration: The OFS remains open for one trading day only. Institutional investors usually bid in the morning session, while retail investors bid in the afternoon session.
4. Floor Price Disclosure: The floor price (minimum selling price) must be disclosed to the stock exchanges at least one day before the OFS opens.
5. Retail Investor Reservation: A minimum of 10% of the total offer size is reserved for retail investors.
6. No New Share Issue: OFS involves only the sale of existing shares; no new shares are created or issued.
7. Settlement Timeline: All OFS transactions are settled on a T+1 basis, meaning allocation and payment occur within one working day after the offer closes.

Things to Consider Before Applying

Before participating in an Offer for Sale, investors must evaluate several key factors to make well-informed decisions. Here are the essential things to consider before applying for an OFS:

1. Company Fundamentals: Always assess the company’s financial performance, business model, and growth potential. Avoid participating in an OFS simply because the share is available at a discount, ensure the company’s fundamentals are strong.
   
2. Promoter Intent: Understand why the promoters are selling their shares. If the sale is to meet regulatory norms or for disinvestment purposes, it’s usually fine. However, frequent or large promoter sell-offs can be a warning sign.
   
3. Floor Price and Discount: Compare the floor price with the company’s current market price. A reasonable discount can make the OFS attractive, but if the price difference is minimal, it may not offer much value.
   
4. Market Sentiment: Consider the overall market conditions before investing. If the market is volatile, stock prices may fluctuate sharply even after the OFS, impacting your short-term returns.
   
5. Investment Horizon: Determine whether you’re applying for short-term gains or long-term investment. OFS shares often perform better when held for the long term in fundamentally strong companies.
   
6. Trusted Broker Support: Apply for OFS through a registered and reliable broker like Lakshmishree, which provides accurate guidance, bid placement assistance, and timely updates.

OFS vs IPO vs FPO: What’s the Difference?

The main difference lies in the purpose, process, and type of shares offered. While an IPO involves issuing fresh shares to the public for the first time, an OFS allows promoters to sell their existing shares, and an FPO lets companies issue additional shares after being listed.

Who Can Participate in an OFS? Retail vs Institutional Investors

Both retail and institutional investors are eligible to participate in an Offer for Sale (OFS). Institutional investors such as mutual funds, insurance companies, and foreign institutional investors (FIIs) usually bid in the first session, while retail investors can place bids in the second half of the trading day. As per SEBI guidelines, at least 10% of the total OFS offer size is reserved for retail investors, allowing individuals to buy shares directly at the floor or discounted price. Institutional investors, on the other hand, often compete for larger allocations at higher prices. 

Advantages and Disadvantages of OFS

Like any investment mechanism, an Offer for Sale (OFS) comes with its own set of advantages and limitations. 

Advantages of OFS

1. Quick Execution: The OFS window remains open for just one trading day, with share allotment and settlement completed by the next working day (T+1). This makes it one of the fastest share sale mechanisms in the market.
2. Retail Participation with Discounts: At least 10% of the offer size is reserved for retail investors, who often receive a discount on the floor price — making it an attractive entry opportunity.
3. No Dilution of Share Capital: Since promoters sell their existing shares instead of issuing new ones, there’s no dilution of the company’s equity. The company’s financial structure remains unchanged.

Disadvantages of OFS

1. Limited to Top Companies: Only the top 200 listed companies based on market capitalisation can use the OFS route. Smaller companies are not eligible.
2. Price Volatility: Post-OFS, share prices may fluctuate due to increased supply in the market, which can affect short-term investors.
3. Limited Time Window: The offer remains open for just one trading day, leaving little time for investors to analyse and bid.
4. Competitive Bidding: Oversubscription in popular OFS issues can lead to partial allotment or no allocation at all for some retail investors.

Bidding Process of OFS

The bidding process of an Offer for Sale (OFS) is a streamlined system that takes place entirely through the stock exchanges, ensuring fair and efficient allocation of shares. Here’s how it works:

1. Announcement and Floor Price Disclosure: Before the OFS opens, the selling shareholders announce the total shares on offer and disclose the floor price — the minimum price investors can bid at.
2. Bidding Window: The OFS typically remains open for one trading day. Institutional investors can place bids in the morning session, while retail investors participate in the afternoon session.
3. Placing Bids: Investors place bids through their registered brokers by specifying the quantity of shares and the price they’re willing to pay. The bids must be within the range defined by the floor price.
4. Price Discovery and Allocation: Once the bidding closes, all bids are collected electronically through the exchange platform. The shares are then allotted based on cut-off price, the price at which the total demand matches the number of shares available.
5. Settlement: Successful bidders receive their allotted shares directly in their demat accounts within T+1 day (one working day after bidding).

Bidding Process of OFS

The bidding process of an Offer for Sale (OFS) is designed to be quick, transparent, and easy for both retail and institutional investors. Below is a simplified breakdown of how it works:

• Announcement & Floor Price: The company or promoters announce the OFS details, including the number of shares offered and the floor price, at least one day before the offer opens.
• Bidding Process: Investors submit their bids through registered brokers, stating the number of shares and price they wish to pay — the bid must meet or exceed the floor price.
• Cut-off Price Discovery: Once bidding closes, the cut-off price is determined — this is the price at which total demand matches the available shares.
• Proportionate Allocation: If the OFS is oversubscribed, shares are distributed proportionately among investors based on their bids.
• Settlement (T+1): Successful bidders receive the allotted shares in their demat accounts the next working day, while funds are automatically settled.

This streamlined OFS bidding process ensures fair participation, speedy settlement, and transparency for all types of investors.

Tax Implications of Participating in OFS

OFS shares are bought and sold through stock exchanges, their taxation follows the same rules as regular share trading under the Income Tax Act, 1961.

Here are the key points to remember:

1. Capital Gains Tax Applicability: Any profit earned from selling OFS shares is treated as capital gains. The tax depends on how long the investor holds the shares before selling them.
   
2. Short-Term Capital Gains (STCG): If the shares are sold within 12 months of purchase, the profit is taxed at 20%, provided the sale is made through a recognised stock exchange and Securities Transaction Tax (STT) is paid.
   
3. Long-Term Capital Gains (LTCG): If the shares are held for more than 12 months, the profit qualifies as long-term capital gains. As per the current tax rules (FY 2024–25), LTCG above ₹1 lakh in a financial year is taxed at 12.5% without indexation benefits, provided STT is paid during purchase and sale.
   
4. Tax Deduction at Source (TDS): Generally, no TDS is deducted on capital gains from OFS transactions for resident investors. However, non-resident investors may have TDS obligations as per applicable laws.
   

Conclusion

An Offer for Sale (OFS) is a simple, transparent, and efficient route for promoters to reduce their stake while giving investors a fair chance to buy shares at competitive prices. It is particularly suitable for those looking to invest in fundamentally strong, established companies at potential discounts. Retail investors benefit from reserved quotas and price advantages, making OFS an attractive opportunity for portfolio growth.

Frequently Asked Questions

Disclaimer: This article is intended for educational purposes only. Please note that the data related to the mentioned companies may change over time. The securities referenced are provided as examples and should not be considered as recommendations.

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