IPO Investment through ASBA Facility
The BSE Sensex has already crossed past the psychological mark of 25000 bringing back the bulls at the centre stage. The week gone by has already witnessed IPOs of some of the leading companies like Thyrocare Technologies Ltd, Ujjivan Financial Services Ltd and Parag Milk Foods Ltd garnering renewed interest amongst retail investors like the yesteryear. As the markets gain momentum, a host of other companies are expected to raise capital through primary market route in the coming days.
In light of the above, we must know about the new mode of applying in IPOs or the Application Supported by Blocked Amount (ASBA) way that has redefined the whole mechanism of working in IPOs.
So what does ASBA stand for?
ASBA stands for Application Supported by Blocked Amount (ASBA). In simple terms, it ensures that the applicant or the investor’s money remains in his/her bank account until the shares are allotted to him/her by the Company.
Though ASBA was introduced by SEBI for retail investors way back in 2008, however it gains further attention now as it has become compulsory for all investors since January, 2016. Further, earlier investors could only go to banks to apply in ASBA mode (except 13 Cities, where Syndicate ASBA was available) unlike now where even your financial broker or advisor is mandated to do so.
The mechanism requires the applicant to give an authorization to block his/her application money in the bank account for subscribing to the IPO. His/her bank account is debited / funds will be unblocked only after the basis of allotment is finalised, or the IPO is withdrawn or fails.
How does ASBA work?
Under ASBA facility, investors can apply in any IPO by using their bank account. Investor submits the ASBA form (available with brokers and banks) after filling KYC details like name of the applicant, PAN number, demat account number, bid quantity, bid price and other relevant details. Further they are required to mention their bank account number and bank branch details with their bank signature thereby authorising their banking branch to block the application amount in their account.
In turn, the broker/bank uploads the details of the application in the bidding platform and the forms are then submitted to authorized branches of respective banks also called Self Certified Syndicate Banks (SCSB).
The whole process is hereby explained with the help of diagram as below:
Why is ASBA beneficial to investors like you and me?
Applying through ASBA mode is a win-win for investor because:
- Earn interest on application money: You continue to earn interest on the application money as the amount remains in your bank account and is just held on respective days.
- No need for cheque payments: The investor does not need to pay application money through cheque, he has to just submit ASBA form which accompanies authorization to block the amount in his bank account.
- No follow up for refund: The cumbersome follow of refunds is done away with, as money to the extent required for allotment of securities, is only debited from your bank account. Further, in case of non-allotment of securities, the blocked money is released after the basis of allotment is finalized.
- Early exit: You get early exit as listing of securities takes place on T+6th day, for investors who wish to book profits.
Is an applicant allowed to withdraw ASBA bids?
Yes. During the bidding period, one can approach SCSB, to which he/she had submitted the application and make a withdrawal request, post which, the bank will unblock the amount. After the bid closure period, applicants need to send their withdrawal requests to the Registrars in order to withdraw their bids.
How many applications can be made from a bank account?
SCSBs have to ensure that not more than five applications can be made from a bank account per issue. This means third party applications are allowed from your bank account.
Can I withdraw the amount blocked in favor of ASBA application?
No, the amount blocked in your bank account supporting the ASBA application cannot be withdrawn till the time of allotment.
What would happen if the issue is withdrawn or fails?
Under such circumstances, the application money is unblocked in your bank account after receiving communication from the Registrars to the issue.