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What is Offer for Sale (OFS) & How It Works in the Share Market?

What is Offer for Sale (OFS) & How It Works in the Share Market?

An Offer for Sale (OFS) is a streamlined, exchange-based mechanism that lets promoters or significant shareholders of already-listed companies reduce their stake. Unlike an Initial Public Offering (IPO), which brings a company to the market for the first time, an OFS is reserved for companies already listed, making it a quicker and more transparent way for large shareholders to divest ownership.

To participate in an OFS, investors must open demat account online with a SEBI-registered broker, as all OFS transactions are settled electronically through demat and trading accounts.

What Is an Offer for Sale (OFS)?

OFS is a regulatory mechanism introduced by SEBI to help listed companies meet minimum public shareholding requirements. (Sebi: Sebi tweaks offer for sale rules, 2023) Through an OFS, promoters or major shareholders sell a portion of their existing holdings to the public, no new equity shares are issued; it is simply a transfer of shares. Initially restricted to the top 100 companies by market capitalisation, SEBI has now extended OFS eligibility to all listed entities. (SEBI expands OFS framework to all companies with a market cap of Rs 1,000 crore and above, 2018) This tool is central to government disinvestment programs and for promoters needing to comply with the 25% minimum public shareholding rule. (Sebi tweaks offer for sale rules, 2023)

How Does Offer for Sale Work?

The operation of an OFS is highly systematic and takes place in a separate window on the stock exchange. The process begins when the seller notifies the exchange at least two working days before the bidding starts. The seller must announce a “Floor Price,” which is the minimum price below which no bids will be accepted.

The OFS bidding process spans two consecutive days. On Day 1 (T Day), institutional investors place their bids. On Day 2 (T+1), retail investors can participate, either bidding at a chosen price or the ‘Cut-off Price’, guaranteeing allotment at the final discovered price. Successful bidders receive shares directly in their demat accounts within one or two days (T+1/T+2), provided they maintained 100% upfront margin at the time of bidding.

Also Read: How Does IPOs Work?

Types of Investors Eligible for OFS

SEBI has clearly defined the participants eligible for an offer for sale to ensure market balance and fair access:

Institutional Investors

These include Mutual Funds, Insurance Companies, Foreign Portfolio Investors (FPIs), and Pension Funds. As per Budget 2026, FPI limits under the Portfolio Investment Scheme have been relaxed, enabling individuals to hold up to 10% in a single company. A report from SEBI on its board meeting held on October 8, 1999, notes that the board approved an amendment allowing stock brokers to hold portfolios of securities for beneficial owners in dematerialised form up to 100 times the broker’s net worth. The press release does not mention specific provisions regarding the definition of retail investors or mandatory reservation of offer size for retail participants. (SEBI: SEBI tweaks offer for sale rules, 2023)

Non-Institutional Investors (NII)

High-net-worth individuals (HNIs) and corporate bodies who bid for more than ₹2 Lakhs.

Investors need an active demat and trading account to participate. Retail investors are often offered a 2% to 5% discount on the floor price, making OFS a compelling way to acquire shares of established companies. (Regulator SEBI brings OFS framework 2.0, allows exit to non-promoters, 2023)

OFS vs IPO: Key Differences

While both OFS and IPO allow investors to buy shares, they differ fundamentally. An IPO is when a company issues new shares to the public for the first time to raise capital. In contrast, an OFS involves promoters or large shareholders selling their existing shares, no new shares are created. As a result, funds from an IPO benefit the company, whereas proceeds from an OFS go directly to the selling shareholders.

Another key difference is speed: while IPOs can take weeks from filing to listing, OFS transactions are completed in just 2 days. IPOs typically require a minimum lot size, but OFS lets you bid for as few as a single share. (Offer for Sale of Shares, 2012) For both, an active demat account is essential for electronic settlement.

Also Read: Types of IPO

Key Features of Offer for Sale (OFS)

  • Dedicated Bidding Window: OFS occurs in a special trading window during market hours, separate from regular secondary market trades.
  • Applications for the Offer for Sale (OFS) are made online through your broker’s trading platform, and typically no paperwork is required. According to The Economic Times, sellers are allowed to offer a discount to retail investors, with details about the discount and reservation percentage disclosed in the OFS notice to the exchange. (Comprehensive Framework on Offer for Sale of Shares through Stock Exchange Mechanism, n.d.)
  • Allotment Priority: Shares are allotted based on either ‘Price Priority’ (higher bids get preference) or at a discovered ‘Clearing Price.’
  • Transparency: The floor price is known in advance, providing a clear benchmark for investors to place their bids.

Advantages and Disadvantages of OFS

Advantages:

  • Cost Efficiency: Usually, there are no extra Securities Transaction Tax (STT) or other charges for buyers in an OFS. (Securities Transaction Tax (STT): Latest Updates, New F&O Rates, Impact of F&O Hike, 2026)
  • Transparency: The bidding process is exchange-monitored, ensuring a fair price discovery mechanism.
  • Quick Settlement: Shares are credited to your demat account more swiftly than with IPOs or FPOs.

Disadvantages:

  • Price Pressure: An OFS announcement often leads to a temporary price dip as supply increases. (Comprehensive Framework on Offer for Sale (OFS) of Shares through Stock Exchange Mechanism, 2023)
  • Upfront Payment: Unlike IPOs that allow ASBA (blocking of funds), OFS requires the entire bid amount to be available in your trading account immediately.
  • No Fresh Capital: The funds raised do not directly benefit the company’s growth, as they go to the selling promoter.

Also Read: Advantages and Disadvantages of IPO

Why Do Companies and Promoters Use OFS?

Companies primarily use the offer-for-sale route to meet SEBI’s regulatory requirement of a minimum 25% public shareholding. (Sebi tweaks offer for sale rules, 2023) If a promoter owns 90% of a company, they must sell 15% of their stake to remain listed. (Sebi relaxes minimum public shareholding norm, widens and hikes anchor allotment quota, more time allowed to hit 25% public shareholding, 2025) It is also the fastest way for the Government of India to divest its stake in Public Sector Undertakings (PSUs). (Sahu, 2026) Additionally, private equity firms and large venture capitalists use this platform as an exit route to liquidate their massive holdings without disrupting the regular secondary market’s daily volume.

Also Read: What is Grey Market in IPO and How It Works?

Things Investors Should Know Before Investing in OFS

Before placing a bid, consider these vital factors to optimise your investment:

  • Monitor Institutional Demand: Review Day 1 subscription figures, strong institutional participation often signals an attractive floor price.
  • Margin Availability: Ensure your trading account is funded with 100% of the bid amount before Day 2.
  • Discount Details: Confirm whether the retail discount is applied to the ‘Floor Price’ or the final ‘Clearing Price.’
  • Cut-off Option: Retail investors should consider bidding at the “Cut-off Price” to maximise their chances of getting an allotment if the issue is oversubscribed.
  • Market Price Comparison: If the current market price falls below the floor price due to volatility, bidding in the OFS might not be profitable.

Also Read: Things You Should Know Before Investing in IPO

Taxation on OFS Shares

Taxation on OFS shares follows the latest Union Budget 2026 guidelines for capital gains on equity shares:

  • Long-Term Capital Gains (LTCG): If OFS shares are held for more than 12 months, gains above ₹1.25 Lakh are taxed at 12.5% (as per Budget 2026). (Budget 2026: FM Sitharaman keeps LTCG tax rates unchanged for FY27, 2026)
  • Short-Term Capital Gains (STCG): If sold within 12 months, profits are taxed at a flat 20%. (Tax on short-term capital gains in certain cases, n.d.)
  • Buyback Update: Starting April 1, 2026, buyback proceeds will be taxed as capital gains rather than as dividend income for shareholders. According to the Reserve Bank of India, capital gains from the redemption of Sovereign Gold Bonds by individuals are exempt from tax. 

How to Apply for OFS in India

Applying for an OFS in India is straightforward and works much like buying shares through your trading app.

  1. Log in: Access your broker’s mobile app or web portal.
  2. Navigate to OFS: Look for the “Offer for Sale” section under the Corporate Actions or Invest tab.
  3. Select the Issue: Choose the specific company’s OFS you wish to participate in.
  4. Enter Bid Details: Specify the number of shares and the price (at or above the Floor Price).
  5. Funding: Ensure your account has a sufficient balance, as the amount is blocked immediately.
  6. Review and Submit: Once submitted, you can modify or cancel your bid until the window closes. Successful allotments will reflect in your demat account within two days.

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Frequently Asked Questions

OFS is the sale of existing shares by promoters on a stock exchange window, whereas an IPO involves issuing new shares to raise fresh capital for the company.

Yes, OFS can be an excellent way to acquire shares of well-established companies at a discount, with faster allotment compared to IPOs.

Yes, promoters frequently offer a 2% to 5% discount to retail investors to encourage participation and meet public shareholding norms.

There is no fixed minimum lot size. You can bid for as little as 1 share, provided the total bid is under ₹2 Lakhs for the retail category.

Allotment is done based on price priority (highest bidders get preference) or at a clearing price that everyone pays.