OFS vs. Fresh Issue: Where is Your Money Actually Going?

When you read an IPO prospectus, you will see two main components: a "Fresh Issue" and an "Offer for Sale" (OFS). Understanding the difference is crucial for your investment thesis. In a Fresh Issue, the company issues new shares and the money raised goes directly into the company’s bank account to fund things like new factories, debt repayment, or R&D. This is generally seen as a positive sign for growth.\n\nOn the other hand, an Offer for Sale (OFS) involves existing shareholders—like founders or Venture Capitalists—selling their shares to the public. In this case, the money does not go to the company; it goes to the sellers. While an OFS is a legitimate way for early investors to "exit" and get their rewards, a very high OFS component can sometimes be a red flag, as it might signal that the founders are "cashing out" at a peak.\n\nMost modern IPOs are a mix of both. For example, a company might raise ₹200 crore to build a new plant (Fresh Issue) while the early PE firm sells ₹300 crore worth of their holding (OFS). A balanced mix shows that the company has a clear use for new capital while providing liquidity to early backers. Investors should be wary of 100% OFS issues from loss-making startups, as these are often "exit-only" events.\n\nAnother technical detail is the impact on "Earnings Per Share" (EPS). A Fresh Issue increases the total number of shares, which can "dilute" the EPS in the short term. An OFS does not increase the number of shares; it just changes who owns them, so there is no dilution. This makes OFS-heavy IPOs sometimes more attractive from a pure valuation standpoint for profit-making companies.\n\nIn conclusion, always check the "Objects of the Offer" section. If the Fresh Issue is meant for "General Corporate Purposes" rather than specific expansion, be cautious. As we prepare for the 2026 pipeline, knowing where the money flows will help you separate the growth stories from the mere exits. Always prioritize companies that are using a significant portion of the funds for productive, revenue-generating assets.