An easy way to sell stock in listed firms on the exchange platform is with an offer to sell (OFS). Indian securities regulator SEBI originally launched OFS in 2012 to make it easier for listed company founders to cut their interests and achieve minimum public ownership requirements by June 2013.
OFS can be a good way for companies to raise capital without going through the time and expense of a full-fledged public offering. However, it is important to note that OFS can also be a riskier proposition for investors, as they may not have the same information about the company as they would in a public offering.
Here we will look deeper into OFS meaning and how investors can benefit from it.
What is OFS?
An offer for sale (OFS) is a public offering of securities in which the shares are offered for sale by the company’s existing shareholders rather than by the company itself. This type of offer is often used by companies already listed on a stock exchange and looking to raise additional capital. An OFS may only be issued for a maximum of one trading day.
In India, the process of OFS is governed by the Securities and Exchange Board of India (SEBI).
The company wishing to do an OFS must appoint a merchant banker. The merchant banker then files a draft offer document with SEBI. After SEBI approves the draft document, the company can start the process of OFS.
The company must first announce the price band of the securities being offered for sale. The company also has to announce the date on which the OFS will open and when it will close. In an OFS, according to SEBI institutional investors like mutual funds, insurance firms, etc., must reserve 5%.
Offer For Sale has been widely used by publicly listed private and state-owned businesses, and the government eventually sold its holdings in public sector businesses. The process of OFS is a cost-effective method of raising funds and provides an exit route for promoters who wish to dilute their stake in the company.
Advantages of an OFS
- For individual investors, a discount on the floor price is often provided as part of the OFS procedure. One key draw for individual investors to invest through OFS is this discount, which might be in the neighborhood of 5%.
- Retail investors can save time by using OFS.
- The fees related to submitting an offer for sale may stir your interest. The response is that there are no additional costs beyond the standard securities transaction fees (STT) that apply to all stock investments.
- Another benefit is that OFS doesn’t need any documentation, which cuts down on the time required for a retail investor to complete the procedure.
- OFS is a cheaper and faster alternative to an Initial Public Offering(IPO).
Things You Need to Consider Before Investing in OFS?
Before investing in an OFS, you should consider the following factors:
- You should review the company’s financial statements to understand its financial health. This will help you to assess the risks involved in investing in the company.
- The only way to finance an OFS is through a broker, intermediary, or agent; physical forms cannot be used to submit an OFS. As a result, a Demat account is necessary to invest in OFS. To be eligible for the offers, OFS investors should have access to the necessary amounts in their accounts.
- It would be best if you understood the company’s business model and competitive advantages. This will help you to determine whether the company is a good investment.
- OFS orders can only be made between 9:15 am and 15:00. After 15:00, orders cannot be modified or placed.
- You should assess the company’s management team. This will help you determine whether the company will likely succeed in the future.
- Only a limited number of orders may be made while applying for an OFS. Market orders will not be accepted. Except for mutual funds, corporations cannot sell over 25% of their OFS to a single offeror.
- You should assess the current market conditions to determine whether the timing is right for investing in the company.
- You should assess your financial situation to determine whether you can afford to invest in the company.
In contrast to other trading methods, Offer For Sale (OFS) is a useful tool that provides discounts and opens up access to shares to a larger audience.
Now that you know OFS meaning in the share market, you must know that it is a practical, cost-effective, and time-saving choice that allows promoters to reduce their shareholding in publicly traded businesses and individual investors to purchase shares in openly traded companies. There is, therefore, no reason to forego taking part in an OFS if the firm has strong potential.