Investing in stocks can be a lucrative venture, but it's essential to have a reliable and hassle-free system to manage your investments. This is where Application Supported by Blocked Amount (ASBA) comes in. ASBA is a unique system that allows investors to apply for shares in an Initial Public Offering (IPO) without having to pay upfront. The funds are only debited once the shares are allotted, ensuring a smoother application process for investors.
In this article, we will dive deeper into the ASBA process, its eligibility criteria, benefits, and step-by-step application process, both online and offline.
What Is ASBA?
ASBA is an innovative investment process developed by SEBI to simplify the process of investing in Initial Public Offerings (IPOs).
Under this process, investors need to authorise the blocking of the application amount in their bank account while applying for an IPO. This means that the investor's money is not debited from their account at the time of application, but is only blocked for the IPO subscription. The blocked amount earns interest during the application process, and the investor can continue to use their funds for other purposes until the allotment is confirmed.
The ASBA process is mandatory for non-retail investors who wish to invest in IPOs. One of the key benefits of using ASBA is that the investor's money is debited only if their application is selected for allotment. If the application is not selected, or the issue is withdrawn, the blocked amount is unblocked and refunded to the investor's bank account.
Why Was ASBA Introduced?
ASBA was introduced by SEBI to simplify the IPO application process and make it more efficient for investors. Prior to the introduction of ASBA, investors had to issue cheques to the banker for the IPO, which would take three months to get intimidated regarding share allotment. Throughout this duration, the applicant did not earn any interest on the amount that was locked. The previous StockInvest process, introduced in 1993, was discontinued due to rampant fraudulent activities.
SEBI introduced ASBA in an effort to modernise the Indian stock market and make the IPO application process more efficient and transparent. It has since become a mandatory process for non-retail investors who wish to invest in IPOs. The ASBA process has made investing in IPOs more accessible and investor-friendly, as the investor's funds are not locked up during the application process, and they only get debited if the application is selected for allotment. Overall, ASBA has had a significant positive impact on the Indian capital markets ecosystem.
How Does ASBA Work?
The ASBA process involves the temporary holding of the application money in the investor's bank account until the basis of allotment in the issue is finalized. This means that the investor's funds are not locked up during the application process and they can continue to earn interest on their blocked amount.
Investors can apply for IPOs through the ASBA process using Self Certified Syndicate Banks (SCSBs), which are banks that satisfy the conditions laid by SEBI. SCSBs receive and authenticate the applications, temporarily hold the funds for the bid payment amount, and enter the information into NSE's online bidding system. Once the allotment basis is finalised, the blocked amount is unblocked, and the amount for the allotted shares is transferred to the issuer.
The ASBA process provides investors with a more efficient and transparent way of applying for IPOs. It eliminates the need for physical cheques and provides a seamless process for the investor. It also ensures that the issuer does not receive interest income on the float during the interim period.
ASBA Application Process
To avail of the ASBA facility, investors can use either the offline or online method of application. In the offline method, investors can download the ASBA form from the BSE or NSE websites and submit it at the Self-certified Syndicate Bank along with necessary details like name, PAN card details, Demat account number, bid quantity, bid price, and bank account number and IFSC. Once submitted, the bank will block the amount in the investor's account and upload the details to the bidding platform.
In the online method, investors can log in to their net banking portal, select the IPO Application option, and fill in the necessary details like name, PAN, bid quantity, bid price, and 16 digits unique DP number. After submission, the bank will block the amount in the investor's account, and the details will be uploaded to the bidding platform.
It is essential for investors to ensure that the information provided in the ASBA form is correct to avoid rejection of the application. They should also note that once the IPO application is submitted, the amount will get blocked in their account, and they will not be able to use it for other needs. Under ASBA, investors can apply up to three bids using one PAN. Multiple applications using a single PAN, insufficient funds in the account, or incorrect information provided in the application can lead to rejection of the IPO application. Investors can check the status of their application on the BSE or NSE websites after submission.
Eligibility Criteria For ASBA
To be eligible for the ASBA facility, investors need to meet certain criteria. Here is the eligibility criteria for ASBA:
● The residency requirement for investors is that they must be based in India.
● The investor should have a valid PAN card and a Demat account.
● To apply, investors must use a Self-certified Syndicate Bank (SCSB) that meets SEBI's prescribed conditions.
● The investor should have sufficient funds in their bank account to cover the bid amount.
● The investor should bid at the cut-off price with a single option of the number of shares to bid for.
● The investor should not bid under any of the reserved categories.
● The investor must agree to the terms and conditions of not revising a bid once it is submitted.
How To Apply For ASBA?
Investors can follow either an offline or an online method, depending on their preference. Here are the steps involved in both methods:
1. Offline ASBA Application Method
Applying for an IPO through the ASBA facility offline involves the following steps:
● Download the ASBA application form from the BSE or NSE website.
● Fill in the required details, including your name, PAN card number, demat account number, bid quantity, bid price, bank account number, and Indian Financial System Code (IFSC).
● Submit the filled-in application form to a Self-certified Syndicate Bank (SCSB) and collect the acknowledgement receipt.
● The SCSB will verify the application and block the bid amount in your bank account.
● Subsequently, the SCSB will transfer the particulars to the bidding platform.
● It's important to ensure that the details provided in the ASBA form are accurate to avoid rejection.
2. Online ASBA Application Method
Applying for an IPO through the ASBA facility online is a faster and simpler process. Here are the steps to follow:
● Access your net banking portal and select the option for net banking.
● Choose the IPO application option from the list of available options.
● You will be directed to the platform for IPO applications.
● Fill in the required details, including your name, PAN card number, bid quantity, bid price, and the 16-digit unique DP number.
● Submit the application.
● After applying for the ASBA IPO, you can check the application status on the NSE or BSE websites.
Benefits Of ASBA
Investing in IPOs through the ASBA process comes with numerous benefits, making it an attractive option for investors. Some of these benefits are:
● Interest Income
While you reserve funds in your bank account for an IPO, the blocked amount continues to earn interest. This means that you do not lose out on interest income, which would have been the case if you had invested via cheques or demand drafts.
● Hassle-free Process
ASBA eliminates the need for physical documentation and payment through cheques and demand drafts. The process is entirely online and can be done via Netbanking, making it hassle-free and cost-effective.
● No Refund Hassles
In case the shares are not allotted to you, the money is unblocked from your bank account for further use. You don't have to worry about refund hassles, and your money is readily available for other investment opportunities.
● AQB Calculation
The blocked amount in your account is considered while calculating the Average Quarterly Balance (AQB). This helps you maintain your AQB and avoid any penalty charges for not maintaining the required balance.
ASBA has transformed the IPO application process in India by providing a more efficient and hassle-free way for investors to participate in IPOs. ASBA ensures that investors earn interest on their blocked funds, eliminates the need for physical documentation and offers easy refunds. It has become a popular choice among investors looking to invest in IPOs. With ASBA, the IPO application process has never been easier, and it's clear that this system will continue to be a game-changer in the Indian stock market.
More About IPO
Frequently Asked Questions
Certainly, it is possible for an individual to revoke an ASBA application as long as the IPO issue remains open for bidding. In the event that the IPO bidding window lasts for three days, investors are entitled to withdraw their applications at any point within this period. Following the cancellation of the application by the investor, the blocked amount will be released by the next working day.
No, all applicants have equal chances of receiving an allotment regardless of whether they apply through ASBA or non-ASBA. The allotment process adheres to a fair and transparent system established by the regulatory authorities.
Yes, an individual can make an application through ASBA process in all the issues that are available in the market. ASBA process is available for all the public issues offered by companies through an IPO or a follow-on public offer (FPO).
Yes, an ASBA application form can be rejected if there are certain discrepancies or errors found in the application. These may include insufficient balance in the bank account, a mismatch in the name on the PAN Card with that in the application form or Demat account holder name, multiple applications by the same investor, or incorrect information provided by the applicant. It is important to ensure that all the information provided in the application is accurate and matches the PAN Card and Demat account details to avoid rejection of the ASBA application.
A Self-certified Syndicate Bank (SCSB) is a financial institution that has been authorized by the Securities and Exchange Board of India (SEBI) to provide the Application Supported by Blocked Amount (ASBA) service to its customers. The SCSB can provide this service to the investor by blocking the required amount in their account until the shares are allotted. SCSBs are authorised by the Securities and Exchange Board of India (SEBI) to provide ASBA services to investors.