How to participate in an OFS on Zerodha

An Offer for Sale (OFS) is a mechanism through which promoters or large existing shareholders of a listed company sell their shares to investors through the stock exchange platform, without the company issuing new shares. No fresh capital is raised by the company; the proceeds go directly to the selling shareholder.

OFS is used primarily for:

• Government disinvestment of Central Public Sector Enterprises (CPSEs).
• Promoters reducing their stake to comply with minimum public shareholding (MPS) norms (25% for most listed companies under SEBI LODR Regulations).
• Large institutional shareholders exiting their positions.

Zerodha enables retail and non-institutional investors to bid in OFS through Kite, similar to IPO applications, and charges no brokerage on OFS transactions. This guide should be read alongside OFS on Zerodha for the full product overview.

Conflict-of-interest disclosure: WebNotes is an independent information publisher with no commercial arrangement with Zerodha.

Prerequisites

• An active Zerodha trading and demat account at CDSL.
• Sufficient funds in the Zerodha trading account (funds are blocked at the time of bid submission).
• Kite access (web or mobile app).
• PAN-linked bank account for tax reporting purposes.
• No minimum holding of the company’s shares is required to bid in an OFS.

Regulatory framework

OFS is governed by SEBI Circular CIR/MRD/DP/02/2012 and subsequent amendments. Key provisions:

• OFS is available only to listed companies with a market capitalisation of at least Rs 1,000 crore (top 200 companies by market cap must compulsorily use this route for promoter stake reduction to comply with MPS norms).
• Minimum 25% of the issue size is reserved for retail individual investors (applying for shares worth up to Rs 2 lakh total in a single OFS; enhanced retail limit for some government OFS offerings).
• Institutional investors (QIBs) and non-institutional investors have separate allocation categories.
• Bids must be placed during the OFS window (typically T Day for non-retail; T Day and T+1 Day for retail investors, where T is the OFS date).
• The floor price (minimum acceptable price) is set by the seller. No bids below the floor price are accepted.

Step-by-step: bidding in an OFS on Zerodha

Step 1: Identify an upcoming OFS

OFS announcements are published on NSE/BSE websites and in SEBI’s corporate action notifications. The announcement discloses:

• Seller’s name, shares on offer, and OFS date.
• Floor price.
• Retail and non-retail categories.
• Bidding window timings.

Check Kite’s “IPO and OFS” section or the NSE/BSE corporate action calendar.

Step 2: Choose the bidding category

Zerodha clients can bid in the retail and non-retail categories through Kite. QIB bids are handled through institutional channels.

Step 3: Access the OFS section on Kite

1. Log in to Kite at kite.zerodha.com.
2. Navigate to “IPO” or “OFS” section (typically listed under the same menu).
3. Select the OFS company from the active OFS list.

Step 4: Submit a bid

1. Enter the quantity of shares to bid for.
2. Enter the bid price (must be at or above the floor price). Retail investors can also bid at the cut-off price, which means they accept whatever price is discovered in the final allocation.
3. The total bid value is calculated: quantity multiplied by bid price.
4. Funds equal to the total bid value are blocked in the Zerodha trading account at the time of bid submission (similar to ASBA blocking in IPOs).
5. Submit the bid. No brokerage is charged by Zerodha for OFS bids.

Step 5: Bidding window timings

• Institutional category (QIB): Bids placed on OFS Day (T Day), typically 9:15 AM to 3:00 PM.
• Retail category: Bids can be placed on T Day and T+1 Day (the next trading day), typically from 9:15 AM to 3:00 PM on each day.
• Retail investors who bid on T+1 Day know the previous day’s price discovery and can make a more informed bid.

Step 6: Cut-off vs specific price bid

• Cut-off price bid: The investor does not specify a price; they agree to pay whatever the final allocation price is (which will be at or above the floor price). Recommended for retail investors who want maximum chance of allotment.
• Specific price bid: The investor specifies a price. Bids are filled from the highest bid price downward to the cut-off price. If the final cut-off price is higher than your specific bid, your bid is rejected.

Step 7: Allotment and settlement

After the bidding window closes:

• The seller sets the cut-off price based on the price at which the total order book is filled (similar to book-building in an IPO).
• Retail investors who bid at or above the cut-off price receive pro-rata allotment if the retail category is oversubscribed.
• Allotted shares are credited to the Zerodha demat account within T+1 day of the OFS date.
• Blocked funds for allotted shares are debited. Blocked funds for unallotted shares are released.
• NSE/BSE exchange transaction charges (STT, exchange charges, GST) apply on the allotted shares, as this is treated as a secondary market purchase.

Price discount for retail investors

Many government OFS offerings extend a price discount to retail investors (typically 5% below the final institutional cut-off price). This is disclosed in the OFS announcement. Where available, retail investors pay the discounted price even if they bid at the full cut-off price. This reduces the effective cost of acquisition and makes OFS participation attractive for retail investors.

What can go wrong

Insufficient funds: At the time of bid submission, the full bid value (quantity multiplied by bid price) must be available in the Zerodha trading account. If funds are insufficient, the bid is not accepted.

Bid price below floor price: Bids submitted below the announced floor price are automatically rejected.

Specific price bid below final cut-off: If you bid at a specific price (not cut-off) and the discovered cut-off price is higher, your bid is rejected and funds are unblocked.

Short bidding window: OFS bidding windows can be as short as one trading session. If you miss the window, you cannot apply.

No guaranteed allotment: If the retail category is oversubscribed (more bids than shares available), allotment is on a pro-rata basis. There is no guarantee of receiving the applied quantity.

Tax treatment

Shares allotted through OFS are treated as a secondary market purchase (not a primary allotment). Tax implications:

• STT: STT is applicable on OFS allotments (at the equity delivery purchase rate).
• Capital gains on future sale: The cost of acquisition is the OFS allotment price (net of any discount for retail investors). The holding period begins from the allotment date.
  • STCG (sold within 12 months): 15% under Section 111A.
  • LTCG (sold after 12 months): 10% on gains above Rs 1 lakh under Section 112A.
• Exchange transaction charges (exchange levy, SEBI turnover fee, GST) are deducted from the allotment value; these form part of the cost of acquisition.

Related guides

• OFS on Zerodha
• How to participate in a buyback on Zerodha
• Zerodha corporate action charges
• Capital gains tax in India
• Securities transaction tax
• National Stock Exchange
• Bombay Stock Exchange

References

1. SEBI Circular CIR/MRD/DP/02/2012, OFS framework for listed companies.
2. SEBI Circular SEBI/HO/MRD2/CIR/P/2018/14, enhancements to OFS mechanism (retail category, T+1 window for retail).
3. SEBI LODR Regulations, 2015, minimum public shareholding (MPS) compliance via OFS.
4. Income Tax Act, 1961, Sections 111A and 112A.
5. NSE/BSE OFS platform operational guidelines.
6. Zerodha support documentation, OFS bidding on Kite.