In a fresh issue, the company creates brand-new shares and the money you pay goes to the company itself. In an Offer for Sale (OFS), existing shareholders (founders, early investors) sell shares they already own, and the money goes to them, not the company. Most Indian IPOs are a mix of both.
Why does it matter where the money goes?
Because it tells you what the IPO is really for. Follow the rupee.
Fresh issue: the company gets the money. Sundar Textiles, a fictional exporter, issues 1 crore new shares at ₹240 in its IPO. That ₹240 crore lands in the company's bank account, to be spent on whatever the prospectus promised, a new plant, repaying loans, working capital. The share count goes up, so each existing share now represents a slightly smaller slice of the company. In exchange, the company has more cash to grow with.
OFS: the sellers get the money. Suppose an early investor in Sundar Textiles sells 50 lakh of its existing shares in the same IPO. The buyers' ₹120 crore goes to that investor. The company receives nothing from this portion, and the total share count does not change. Ownership simply moves from one set of hands to the public.
A side-by-side comparison
| Fresh issue | Offer for Sale (OFS) | |
|---|---|---|
| Who sells | The company (new shares) | Existing shareholders (old shares) |
| Where money goes | Into the company | To the selling shareholders |
| Share count | Increases | Unchanged |
| What it funds | Growth, debt repayment, etc. | Nothing for the company. It is an exit |
How do I know the mix in a real IPO?
The very first pages of the offer document state it. You will see something like "fresh issue of up to ₹500 crore and an offer for sale of up to 2 crore shares by the selling shareholders." Reading this line takes ten seconds and tells you a lot.
A largely fresh issue says: the company needs capital and has plans for it. A largely OFS issue says: early backers are cashing out. Neither is automatically good or bad. Venture funds are supposed to exit eventually, and a mature, cash-rich company may not need fresh money at all. But an IPO that is 100% OFS with the founders selling heavily deserves the question: if the business is so promising, why are the people who know it best reducing their stake?
From your side as an applicant, the two are indistinguishable. The process is the same either way, as described in how does the IPO process work, from DRHP to listing? You bid at the same price band and receive identical shares. Both routes are also part of the primary market (shares reaching public hands for the first time) which is explained in what is the difference between the primary and secondary market? The distinction matters for what happens after the money is collected, not for how you apply. It is one more input when you weigh an issue, alongside why do companies launch IPOs in the first place.
Things to keep in mind
- Check the fresh-issue-to-OFS ratio in the offer document. It tells you whether your money funds the business or an exit.
- "Objects of the issue" in the prospectus applies only to the fresh-issue portion; OFS proceeds never reach the company.
- A big OFS is not automatically a red flag, but heavy selling by founders (rather than funds) is worth pausing over.
- The shares you receive are identical either way, same rights, same price, same demat credit.
Read next
What are the price band and book building in an IPO? — How the issue price gets decided.