Offer for Sale(OFS): What is it and how to apply for it?
If you have been following the stock market for a while or have invested in stocks of companies, you may be familiar with terms such as Initial Public Offer (IPO) or Follow-on Public Offer (FPO).
These are two simple and transparent ways of investing in the market. But there is yet another method known as the Offer for Sale (OFS), which allows you to purchase shares from the promoters of a company directly. Keep reading to know more about what OFS in the share market is and how you can apply for it.
What is OFS or Offer for Sale?
In OFS, the owners of a company listed on the stock exchange can sell their shares to public investors. It is essential that the company should be among the top 200 companies based on their market capitalisation if the owners want to sell the shares. OFS shares are offered to retail investors, Qualified Institutional Buyers (QIBs), other companies, and Foreign Institutional Investors (FIIs) by the promoters or key shareholders of a company where the investors can bid for these shares.
How to Apply for OFS?
As an investor, if you opt for an investment in OFS, you will need to have a stockbroker and a mandatory demat account. These days, having an online demat account enables you to manage multiple investments easily.
Having a reliable full-service stockbroker is also important. Apart from enabling you to open a demat account, your stockbroker can also help you with research that will help you understand what OFS is and how to apply for it properly.
To start with the application process, here is what is to be done:
- To bid for the OFS, the whole bidding amount needs to be present in your demat account. You cannot place a bid for a certain value if the amount in your demat account is low.
- If you are applying for the offer for sale through multiple brokers as a retail investor, then ensure that that bid value is below ₹2 lakhs.
- You can place Offer for Sale orders only during the market hours, between 9.15 am to 3.00 pm, after which no more orders can be placed.
- While market orders are not allowed for Offer for Sale bids, you can place limit orders. There will be a floor price for the shares below which no bids can be placed.
- Except in the case of mutual funds, a promoter cannot sell anything above 25% of the Offer for Sale volume to one bidder.
- Try applying for an Offer for Sale through Application Supported by Blocked Amount (ASBA). Under this provision, if some amount of the bid value has not been utilised, you will get it back in your trading account one day after the day on which the transaction was made. Hence, for an application that was made on Tuesday, the remaining amount should be credited back by Tuesday.
- On the other hand, if your bid is accepted and the shares are allotted to you, the units should reflect in your online demat account two days after the transaction has been made (T+2).
Do note that in an OFS, the allotment will be carried out based on the highest price priority. Moreover, when placing a bid through an online trading account, it is possible for retail investors to get a discount of about 5% on the floor price. And other than the usual transaction charges and Securities Transaction Charges (STT), there are no other additional costs associated with placing a bid for an OFS. This is the reason why many retail investors find an Offer for Sale investment so cost-effective.
Also Read: Introduction to Share Market Beginners
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Frequently Asked Questions
New investors should select stocks based on their research. This should include studying a company’s financials, future growth potential, the current market trends and more. The book value per share of a stock may be a reliable method to select stocks, but it is more popular among value investors with adequate experience in the stock market.
No, you cannot modify or cancel any of your Offer for Sale bids once you have placed them. However, if you are not allotted the shares, the funds will be refunded to your trading account one day after the transaction through Application Supported by Blocked Amount (ASBA). But if you receive the allotment, the shares will show in your demat account in another 2 days.
While an investor can place any number of bids from multiple exchanges, retail bids from retail investors will be rejected if the total value exceeds ₹2 lakhs.
You can invest in an Offer for Sale only on the trading day on which it is open. The order has to be placed between 9.15 pm to 3 pm only. Furthermore, you can only place limit orders and not market orders for OFS.