Fresh issue vs offer for sale (OFS) in an IPO

Two ways to sell shares in one IPO

An IPO is the first time a company’s shares are sold to the public. The shares on offer can come from two places.

A fresh issue is new shares that the company creates and sells. The money raised goes to the company. It therefore increases the total number of shares.

An offer for sale (OFS) is existing shares that current shareholders sell. These are usually promoters, private equity funds or early investors. The money goes to them. The total number of shares does not change.

Most IPOs are a mix. Some are only a fresh issue, and some are only an OFS.

Fresh issue vs OFS at a glance

For you as an investor, the shares are identical. You bid once, at one price, and the allotment covers the whole offer.

Where the money from a fresh issue goes

The RHP has a section called Objects of the Issue. It lists what the company will do with the fresh issue money: repaying loans, building plants, buying equipment, or general corporate purposes.

SEBI caps general corporate purposes at 25% of the fresh issue for mainboard IPOs. For SME IPOs, the cap is the lower of 15% of the amount raised or ₹10 crore. The rest must be tied to stated uses.

When the fresh issue is above ₹100 crore, a monitoring agency reports how the money is spent after listing, and its reports are filed with the exchanges. You can compare the plan with what actually happened.

Who sells in an offer for sale

The RHP names every selling shareholder, how many shares each is selling and what they paid for them. Typical sellers are:

• Private equity and venture funds taking money out after several years.
• Promoters selling a part of their stake.
• Early investors and employees who hold shares from before the IPO.

SEBI’s rules set limits. Shares offered for sale must generally have been held for at least one year before the draft prospectus is filed. For companies that list without a three-year profit record, large shareholders can sell only part of their holding.

For SME IPOs, since 2025, the OFS cannot be more than 20% of the issue, and a selling shareholder cannot sell more than 50% of their holding.

A worked example

Here is how three recent IPOs split their offer, from their RHPs. The percentages are our calculation.

In Bombay Coated, every rupee goes to the company, and ₹125 crore of it is for repaying loans. In Paras Healthcare, about two-thirds of the money goes to the shareholders who sell. In EAAA India Alternatives, the company raises nothing at all.

None of these is good or bad on its own. They tell you different things to check.

How a fresh issue changes per-share numbers

A fresh issue adds shares, so the same profit is shared by more owners. This is called dilution.

Say a company has 10 crore shares and a yearly profit of ₹120 crore. Its earnings per share (EPS) are ₹12. It then issues 2 crore new shares in its IPO.

After listing, there are 12 crore shares. If profit stays at ₹120 crore, EPS falls to ₹10. These are illustrative numbers.

The RHP’s Basis for Issue Price section works out the P/E on earnings per share before the IPO. On the larger post-issue share count, the same price means a higher P/E. Over time, the new money may add to profit, for example by cutting interest costs.

An OFS does not change EPS, because no new shares are created.

The promoter’s stake after the IPO

A fresh issue and an OFS both change who owns the company. A fresh issue lowers every existing holder’s percentage, because new shares are added. An OFS lowers the percentage of the shareholders who sell.

The RHP’s Capital Structure section shows the promoters’ holding before and after the IPO. SEBI requires promoters to keep a minimum stake, called the minimum promoter contribution, locked in for a set period after listing. The RHP states the period and the number of shares.

What a large OFS can and cannot tell you

An OFS is how early investors turn their stake into money. A fund that invested seven years ago selling part of its holding is normal.

What matters more:

1. Who is selling. A financial investor exiting reads differently from a promoter cutting their stake sharply.
2. How much they keep. The RHP shows each seller’s holding before and after the IPO.
3. What they paid. The RHP lists the average cost of the shares for each selling shareholder. A large gap between that cost and the IPO price is a fact worth knowing, not a verdict.
4. Whether the company needs money. If the business has heavy debt or big plans, but the IPO is all OFS, the company is not raising money for them.

What to check in the RHP

• The cover page. It states the fresh issue and OFS amounts, or share counts, in the first lines.
• The Offer section. It gives the split and the number of shares in each part.
• Objects of the Issue. It shows where fresh issue money will go, and how much is general corporate purposes.
• Capital Structure. It shows shareholding before and after the IPO, including promoters.
• The table of selling shareholders. It lists each seller, the shares offered and their average cost.

Each IPO page on IPO24by7 shows the split under Price and lots, as “Where the money goes”, with its source.

Common mistakes to avoid

• Assuming a big IPO means big money for the company. A ₹1,200 crore IPO can raise nothing for the business if it is all OFS.
• Treating every OFS as a warning sign. Exits by early investors are a normal part of IPOs.
• Reading P/E only on the pre-issue share count. A fresh issue adds shares, so the post-issue P/E is higher.
• Skipping Objects of the Issue. It is the only place that says what the fresh money is for.
• Missing who sells. Promoters, funds and employees selling tell you different things.

What to do next

To read these sections yourself, start with how to read an RHP and the difference between a DRHP and an RHP. For the basics, see what an IPO is and what a price band is. Then look at the split for open and upcoming IPOs.

Sources: SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR), Regulation 8 on shares eligible for an offer for sale and Regulation 8A on limits for selling shareholders; SEBI ICDR (Amendment) Regulations, 2025 on SME issues: offer for sale capped at 20% of the issue size, and selling shareholders limited to 50% of their holding; Red herring prospectuses of Paras Healthcare, EAAA India Alternatives and Bombay Coated and Special Steels, cover page and The Offer (October 2026).

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