Exploring the differences between OFS and IPO!

Podcast Duration: 05:54

Hi friends and welcome to this podcast by Angel One!

Dost OFS and IPO are very closely related concepts lekin in dono mein there are some very significant differences. Aaj hum yeh differences ko discuss karenge aur OFS-IPO ke similarities ko bhi dekhengein.

IPO ka full form hai Initial Public Offering, whereas OFS stands for Offer for Sale. Offer for Sale is actually a type of IPO. In both cases, new shares are put on the market for the public to buy.

The type of companies that might go for an IPO versus the kind that might go for an OFS might also be very different. The reasons for holding either public offer are very different. In an initial public offering– as the name suggests - you will usually be looking at a company who has never been listed on the stock market before. Historical pricing ka koi savaal hi nahi kyunki koi history hota hi nahi hai.

In an offer for sale, the company has typically been in business for a while – to the point that early shareholders – known as anchor share-holders – are happy with their earnings and ready to move on to other opportunities. OFS might also be required to meet minimum shareholding norms. In fact SEBI ne isi liye OFS ko 2012 mein introduce kiya. For companies to stay listed they must always have 25% public shareholding.

Stock prices of companies going in for an OFS are typically available because some shares of the company already exist on the stock market. One such IPO was the Burger King IPO that took place in 2020.

Stock market ke har proposition mein risk is the only guarantee dost. Lekin baat aisi hai:

Investors ko IPO ke liye bahut excitement hota hai kyunki inhe lagta hai ki they are getting shares at a very low price. This could actually be the case, but there is no guarantee. There is no telling how the market will react and whether the price will rise beyond what the investor has paid for the shares. This is the case for just about any IPO or even for an OFS. Lekin investors have a better idea of how the shares of an OFS will perform because they can observe the stock performance over the last few years.

Companies that go for an IPO can be of any size, lekin OFS ke liye, the company has to be large and well established kyunki they have to be among the top 200 companies for the last four quarters by way of market capitalisation. Market capitalization refers to the number of shares held by the public, or shares currently on the stock market.

Large cap companies ko zyada tar less risky bola jata hai, according to stock market experts. Is point-of-view say, IPO aur OFS ke beech mein at least, OFS is the less risky investment proposition.

Evaluation criteria bhi IPO or OFS ke liye alag hote hai – as you may have guessed from the points I have shared with you until now. Before making any stock market investment – especially as a long-term investor – you should check the financial health of any company. Yeh cheez IPO mein aur bhi important ho jati hai because there is no stock price to check. Sirf ek hi evaluation criteria hai aur woh hai company ka balance sheet.

The application process for both IPO and OFS is similar. Retail investor’s ke applications ko “bids” bolte hai. Apne bid price choose karna hota hai in both cases – either at a specific price, nahi toh at a cut-off price aur yeh price demand-supply ke hisaab se calculate kiya jata hai.

Lekin overall procedure ke mamle mein, there are many investors who favour OFS because the allotment happens the very next day after the bid is placed and in case the investor-bidder does not receive any allotment kam se kam, in ko apna paise next day hi wapas mil jata hai. Aap Ko zaroor sunne milega ki “Bhai OFS kar procedure zyaada transparent hai.” This sentiment seems to be linked to the fact that more information is made public – cumulative bid amounts aur indicative prices are updated throughout the trading day. Ulta IPO mein company prospectus mein se jitna information nikal sakte ho, ussi se bid decision bantha hai.

Investors also prefer OFS ka quick turnaround – IPO mein 3-4 days lagta hai for allotment versus OFS ka 1-day process and of course, quick refunds.

Ab discuss karte hai charges. IPO mein you don’t have to pay any charges and fees lekin when you want to buy stock via an offer for sale, the truth is that aapko brokerage fees pay karna hota hai, securities transaction tax bhi.

Sabse biggest exciting factor hai discounts. Ji haan, aapne sahi suna – discounts. In an offer for sale, the sellers can offer a discount to retail investors. Lekin of course, it is not known as a transparent procedure for nothing. Discount details have to be submitted upfront to the stock exchanges.

Timing toh stock market mein kaafi important baat hoti hai toh isse discuss karna nahi bhoolna chahiye. IPO ke liye you have the option of applying after market hours lekin OFS ke liye aapko apna bid trading day mein hi karna hota hai.

Investment amount ka upper limit IPO or OFS mein same hai Rs 2 lakh for a retail investor.

Dost, whether you want to invest in an IPO or an OFS, or whether you want to buy stocks of existing companies, or whether you want to get stock market exposure investing in mutual funds… you have taken the right first step by doing your research. Invest karne ke pehle koi bhi investment ko puri tarah se samaj lo. Stock market investments mein risk hamesha rehta hai, isse minimize karne ke kai tareeke hai – aap yeh tareekon ko zaroor apna lo. Do not be afraid but do not be hasty either – always remember that anyone can invest, irrespective of their age or occupation.

Investments and the securities markets are subject to market risks. Read all the related documents carefully before investing.