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IPO or OFS – Which is Better and Why?

Investment is the most important aspect of financial management as the future prosperity of your hard earned money largely depends on the successful allocation of the money across the feasible pockets. There are multiple channels where you can keep your money safe and growing. However, the speculative market is a place where the risk of keeping your money is high but the returns are considerably higher than the safer pockets like FD, RD and other bank deposits. Moreover, it allows the investor the liberty to withdraw the sum invested at any point of time regardless of the tenure of the investment. This flexibility makes the speculative market one of the most popular channels for investors. All you need to do is a little research on the market movement, the NSE rates and the natures of fluctuations in the market and you can make your investment planning more streamlined on the risk margins. Whereas an unplanned investment is always discouraged as the loss in interest-earning can be a strong repellent for future investments which in turn will make your additional money stagnant. There are two options namely the IPO and OFS that provide rational returns and can be considered for the investment of your money.

The IPO can be a great way to an effective investment

Let us first have a look at the conception of the IPOs. An IPO is the Initial Public Offering that is offered to the market by an enterprise for the first time. To be more transparent, when a private company decides to go public, it offers the mass a part of its stocks. This way, the company manages to collect a certain amount of fund for its own and can use it for reinvestment or expansion plans. The investors are also eligible for the profit shares given out as dividends at regular intervals in case of any profit earned with the raised equity capital. The company offering an IPO can be a fresh one or an old player in the market. The enterprise offering IPOs takes help of the investment bank to put forward the IPOs for the first time in the market and the traders can further sale the IPOs through the secondary market trading. It allows a fair chance to the investor to grow their money and the flexibility to hand over the ownership of the stock purchased as and when required.

Receiving direct investment is sometimes problematic for a new enterprise in the market and IPOs are of much help for raising risk capital to realise the expansion plan. The moment a company issues IPOs it becomes a prominent character in the NSE and the public image of the company experiences a boost. The banks also become more willing to extend financial assistance to the company as it gets listed on the national stock exchange. Issuing IPOs increases the credibility of the company in the market. Since IPOs are primarily issued to raise capital for organic growth as well as acquisition expansions, a good return on this is almost guaranteed. With a considerable growth of the company, your money is also expected to grow considerably. Going public from private also stimulates the employees to participate in the stock holding process.

You can take your investments to be safe with the IPOS and it’s a great way to start your volatile market experience. It comes with a fair opportunity to earn with minimal risks associated. Hence going for an IPO is a wise step taken towards your financial benefit.

Are the OFSs good to be invested for?

OFS refers to Offer for Sale and it has been launched in India in the year 2012 by SEBI. A shareholder or a promoter having more than 10% of the share capital of an enterprise is eligible to come up with this issue. OFS is basically a way to dissolve the existing shares to the market. The enterprises that exist in the market as listed ones are eligible for this facility. In every bidding of OFS, a minimum of 25% of the offered share is reserved for the insurance companies and the mutual funds (MF). A minimum of 10% of the total offer is kept aside for the retail investors and the issuer can offer discounts on the bid prices or the final allotment prices. The window of OFS remains open for one day only. Prior notification is circulated to the stock exchange before going for any OFS. The best thing about an OFS is that it takes lesser time to be closed and in case of non-allotment or partial allotment, the dues get refunded to the investor within the same day. Modification of the bids is also allowed within the OFS hours for the bids that are backed by 100% margins. The bids scoring a below the floor price value is rejected and unlike the FPO, it does not have a defined price band. Following are some of the advantages of opting for an OFS:

  • It takes the least amount of paper works to be done as it is completely a system based bidding
  • It is much cost effective
  • The convenience associated with the entire process is surely an added advantage
  • Owing to the automated process involved in the bidding, it takes less time

In a nutshell, if you are an old player and know the pros and cons of the game, OFS is surely a good option for you. But for beginners, IPOs are a safer and better place to invest in.

If the final dilemma surrounds the fact that which one would be the best to opt for, the answer will vary from person to person. If you have limited time and needs a hassle-free, paper-free purchase within a day, OFS is a good choice. The one thing that is critical while opting for an OFS is the knowledge of the market. If you think you would need some more time to gain the overall view of the NSE, the suggested option would be IPO as it would not only make you a stockholder of a rising enterprise, you might also enjoy the opportunity of owning more shares as published sometimes later by the enterprise.

What do you think?

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Written by Tom Clark

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