Published : November 21, 2020
For the past few years, SEBI, i.e., Securities and Exchange Board of India, introduced a system that enabled investors to sidestep intermediaries such as stockbrokers when applying for IPOs, right issues, and mutual fund New Fund Offers (NFOs). For the convenience of the investors, the ASBA facility was introduced.
When talking about the IPO applications, SEBI has enabled the investors to make payments through ASBA, an alternate route to apply for the public equity shares.
We all, by now know, that ASBA is a widely used acronym among investors. It is a system that requires investors to apply for an IPO through a bank that offers the facility. ASBA stands for Application Supported by Blocked Amount, wherein the application amount stays in the bank account of the investor till the allotment of the issue takes place.
As a result, IPO issuers cannot earn interest on the investors’ money for the interim period.
When talking about ASBA meaning, ASBA, or Application Supported by Blocked Amount, an application mechanism is used at the time of IPO application. The system eliminates the need for refunds in case there is partial or no allotment to an investor during an IPO application.
ASBA allows the money of the investors applying for the IPO to remain blocked in their bank account till the shares of the IPO are allotted by the company coming up with an IPO.
The funds are deducted from the investors’ bank account after the allotment of the shares to the extent of the allotted shares.
The subscription amount for the IPO is blocked as soon as you apply and cannot be used for any other purpose while your IPO application is still in process.
The advantage offered by ASBA is that it allows you to earn interest on the subscription amount even as you bid on the IPO.
In order to use ASBA, you need to fill a designated IPO application form and submit the same to any self-certified syndicate bank. The application can be submitted either online or offline; however, online applications are considered to be more convenient.
In order to apply for an IPO through ASBA, investors can submit the ASBA IPO form, which is available at the designated bank branches acting as SCSB (Self-Certified Syndicate Bank). The ASBA IPO form holds details like the name of the IPO applicant, PAN Number, Demat Account Number of the investor, bid quantity, bid price, and all the other relevant information required for the processing of the IPO application. The details are given to the bank’s branch by giving them an instruction to block the required amount in their bank account. The bank then uploads these details of the application shared by an investor in the bidding platforms. The investor needs to ensure that the details filled in the ASBA form are correct, the form is likely to be rejected.
The investors need to keep in mind that not all banks provide the ASBA facility. For those banks offering the facility, ASBA applications can be made online through the banks’ net banking portal.
ASBA has proved to be beneficial for retail investors in many ways. Here are the advantages offered by ASBA application to the investors:
ASBA is the entire process that supports the retail investors that offers more empowered and better control over the IPO process. The entire process is transparent, which adds to the benefits it offers the retail investors. The investors are not required to pay any amount till the shares are allotted, and hence there is no loss of interest incurred by the investors. The amount is debited from the investors’ bank account only after the shares are allotted and only to the extent of the allotment amount. Furthermore, there are no refund hassles in case of non-allotment of shares.
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