What is OFS? & How to Apply?

What is OFS?

A company can meet its fund requirements for growth and expansion by coming up with an IPO. Through an IPO, fresh equity is issued to investors. Apart from IPO, promoters can liquidate their holdings by selling shares in small lots in the equity market or sell block holdings by OFS.

OFS or Offer For Sale is a process by which listed companies offer to sell their equities. SEBI implemented OFS in 2012 to allow promoters to dilute their equity holdings in public listed companies and comply with the equity holding norms for the general public by 2013. The OFS method was implemented later by all companies in the private and public sectors.

Under OFS stake sale, promoters can sell their shareholdings only. Companies cannot issue fresh equity shares under OFS. The minimum holdings requirement for promoters is 10% to sell their shares under the OFS. Only the top 200 companies can apply for the OFS share sale mechanism according to their market capitalization. 

Under OFS sale, a minimum of 25% of shares being offered for sale are reserved for mutual funds and insurance companies. Other than these institutional investor categories, no single bidder can be allotted more than 25% of the share offered.

How to Apply For OFS?

Retail investors can apply for OFS, and 10% of the offering size is reserved for the retail segment. India's online share trading market has grown tremendously, and it is easy for anyone to apply for OFS through online trading platforms. To apply, a bidder needs to bid for the offer at a particular price or the cut-off price. The cut-off price is arrived at by factoring in demand at different price points. The total bid amount should be less than Rs 2 lakhs for a retail investor, or the bidding application becomes invalid. The final share allocation depends on the price discovery basis of the investor demand. 

A retail investor can bid through a registered broker. Bids can be placed through an assigned dealer. Unlike an IPO, where the bid is open for a few days, the OFS is only open for a single day. If you are a new investor, you can open a demat account with the best trading platform amongst the available players in the market and apply for OFS easily.

How Many Bids Can Be Placed?

As a retail investor, you must be wondering how to apply for OFS. Is the process complicated? 

Under the OFS bidding process, you can bid more than one bid, i.e., multiple bidding is allowed. The total bid amount for all the bids must be available in the investor's account. Investors can change the bids during the bidding process for the entire day. Each investor is informed of the shares allotted. Any amount which is more than the bid price, i.e., partial allotment or amount due in case of non-allotment, is credited back to the investor on the same day. The shares are allotted on a pro-rata basis when the offer is oversubscribed. The process is similar to IPO bidding.

How to Apply for OFS Shares Through a Demat Account? 

To apply to OFS, you require a Demat and trading account. You can open a Demat with any of the best stock trading platforms quickly and apply. 

• Once you log in to your trading account, go to the 'Corporate Action' tab. 

• Here, you will find all the active OFS options. 

• Select the OFS you want to apply for. You need to select the Retail or Non – retail category. Enter the Quantity and Price, and finally, apply. You can enter a price of your choice or a market order option to apply at the cut-off price.

• Cut – off price mechanism in OFS is the same as applicable in the n IPO bidding process. At times retail investors are unable to decide on the bidding price. In such cases, the cut-off price option is helpful; bidding for the lowest price derived in the bidding process is based on demand. 

• A new retail investor can easily apply with a cut-off option without the hassle of price discovery and demand at different price points.

• Once you have applied for OFS, the order is confirmed, and it will show in your Placed Orders tab.

• If the bid happens to be lower than the floor price, you will not get any allocation. The floor price is the minimum price for an investor to bid in OFS. A bid placed at any price lesser than the floor price is not eligible for allotment.

• An OFS order placement time is 9.15 am to 3.00 pm.

Conclusion:

In short, OFS is a simple process for any investor to buy stocks offered under OFS. The documentation is simple; the process is over in a day. Another advantage of OFS is that promoters often provide a discount on floor price to retail investors. OFS costs less compared to buying stocks in the market as the charges are minimal. There are no added charges for the bidding process etc. 

OFS is an easy mechanism to buy stocks of large-top companies without any hassles, paperwork, or time spent on the process.