Exploring the thrilling world of the stock market is always fascinating due to the high return on invested money. But it involves an understanding of various public offerings. Two of the most commonly known are IPO and OFS. An IPO is a first-time offering of shares in public by a privately held company. At the same time, an OFS is a process used by already existing shareholders or promoters to sell their shares in the company. Both are good investment opportunities in the capital market, but they differ in purpose, risk profile, and investor perception. Whether youre chasing an early growth potential or looking for stability in skilled players, understanding the key differences between IPO vs OFS will help you make a smart choice, so lets delve deep into the article to know which one suits your investment style.
What is IPO?
An Initial Public Offering (IPO) is marked when a privately held company offers its shares to the public for the first time and transforms itself from private to a public entity. It allows companies to raise funds from the public to meet their financial needs, which include buying assets, expanding business, repaying debt, or minimizing promoters' share in the company.
What is OFS?
Offer for Sale (OFS) is a process used by promoters or large shareholders of an already listed company to sell their shares partially or completely to the public through the stock exchange. Through OFS, promoters or large stakeholders reduce their stake in the company without the company receiving any new funds.
IPO vs OFS: Purpose
The purpose of an IPO is to raise fresh funds from the public through which privately held companies go public for the first time by issuing new shares, increasing the total number of outstanding shares, or diluting existing shareholders' ownership in some context.
OFS serves as a way for existing shareholders to liquidate their holdings and exit partially or completely. Since existing shares are sold and no new shares are issued, it doesnt impact the companys equity structure.
IPO vs OFS: Beneficiary
In an IPO, the company is the primary beneficiary of the raised funds, which it uses for multiple purposes such as research & development, reducing debt, or expansion.
On the other hand, in OFS, the selling shareholder receives the proceeds from the sale and not the company.
IPO vs OFS: Regulatory Framework
IPOs require a more regulatory process that needs to provide comprehensive information about their financials, operations, risk, and growth prospects.
OFS is less stringent as it involves the sale of existing shares through a stock exchange under the guidance of a regulatory framework.
IPO vs OFS: Price Determination
The price of shares in an IPO is typically determined through a book-building process. The investor submits the bid within the given price range, and the final price is set based on demand and supply.
On the other hand, the price of OFS is set by the selling shareholders and investors based on market conditions and their desired valuation.
IPO vs OFS: Bid Modification
In an IPO, investors can adjust bids but cannot cancel them. At the same time, in OFS, once the bid is submitted, it cannot be cancelled or modified.
Conclusion
To conclude, both IPO and OFS are the processes through which companies offer their shares to the public, serving distinct objectives. IPO is used to raise new funds and list the stock in the stock market, while OFS is a way used by existing stakeholders to exit their position. IPO offers an opportunity for investors to get in early on high-potential stocks, and OFS provides an opportunity to invest in stocks that already exist in the stock market. Both offer opportunities for investment to generate high returns on investment, but in a distinct way. Choosing IPO vs OFS depends purely on individuals' risk appetite, future goals, and investment style. We have tried to mention the key difference between both to help you make a smart decision to lighten your future.