Offer for sale (OFS) vs fresh issue in an IPO
Every IPO page shows an issue size, but that money does not always go to the company. The split between fresh issue and offer for sale tells you where it goes.
Fresh issue
In a fresh issue the company creates new shares and sells them. The money goes to the company, for the purposes stated in the prospectus: expansion, repaying debt, working capital and so on. Existing shareholders own a smaller percentage afterwards.
Offer for sale (OFS)
In an offer for sale, existing shareholders such as promoters, private equity funds or early investors sell some of their shares. The money goes to them, not to the company, and the number of shares does not change.
Where to find the split
The DRHP and RHP state how much of the issue is fresh issue and how much is OFS, and who is selling. Many IPOs are a mix of both.
Why it matters
A large OFS is not bad in itself; early investors have to exit at some point. But it is worth knowing whether the IPO is mainly raising money for the business or mainly letting existing holders sell, and reading the objects of the issue section with that in mind.
For applying, nothing changes: lot size, price band, categories and allotment work the same way for both parts.
Related guides
- DRHP, RHP and prospectus: what to read before an IPO
- IPO lock-in periods explained
- Anchor investors in an IPO
More on how ipos work
- IPO lot size, price band and cut-off price explained
- SME IPO vs mainboard IPO: what is different
- IPO categories explained: retail, HNI (NII) and QIB
- The shareholder quota in an IPO
- The employee quota in an IPO
- What is the HNI category in an IPO?
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Information, not investment advice. GMP is an unofficial grey-market indicator; figures come from public sources (InvestorGain) and may be late or wrong. Not registered with or affiliated to SEBI, the exchanges, the registrars or InvestorGain.