There are various methods of making investments, out of which stock market is one of the leading sector where people invest there money with the expectation of getting good returns. Companies raise there capital by selling shares of stock to the public. Term like Initial Public Offering (IPO), Follow On Public Offering (FPO) Or Right Issue Of A Company are used in the stock market to address the sale of the company’s stock to the public.
Traditionally people interested investing in the companies IPO’s/FPO’s or right issue of a company has to pay the bidding amount along the application form either by Cheque, Demand Draft Or online debit to your bank account for the full application money. In other words, the investor needs to make the full payment of the bidding with the application form.
There are many instances in the past where investors have struggled a lot to get there money back (refund) on non allotment of shares against the application. This cannot be pleasing experience for anyone and can scare investors investing in the market again. There can be ‘N’ number of reasons for not processing of refund amount to the investors on time which includes mismanagement at companies end, incorrect information given by investors etc.
So to resolve these issues The Securities and Exchange Board Of India (SEBI) has introduced ASBA application process. It is an alternate method for IPO application payment where instead of making payments by cheque or demand draft, IPO bidding amount remains in investors bank account, but blocked by the bank until allotment is done. So with this method the amount will only be debited from your bank account against which final shares are allotted to you. Which means if you wont get allotment of shares the money will not be deducted from your bank account.
What Is ASBA Facility?
ASBA stands for Application Supported By Blocked Amount. It is been introduced by SEBI in July 2008. This is been introduced to offer an alternate method of applying for shares through IPO. When an investor apply through ASBA, the application money remains in the investors bank account till the allotment of shares is finalized. In such cases the amount remains in the investors bank account but the amount get blocked till the allotment process is complete. Which means the investor cannot withdraw the application biding amount from his bank account until the share allotment process gets complete. If investor get allotment of shares against his application then the proportionate amount gets deducted from the investors account and the remaining money will be left in the investors account.
What Is The Procedure Of Applying In IPO Through ASBA?
Investor can apply in any public /right issue through ASBA, to use this facility an investor needs to have a bank account in a bank who accept ASBA applications. SEBI have certified some designated branches of banks of almost all leading public and private sector. These banks are referred as Self Certified Syndicate Banks (SCSB’s). You need to fill the application form by providing following details to make an application for shares in an IPO using the ASBA facility.
- Name Of The Applicant
- Permanent Account Number (PAN)
- Demat Account Number
- Bid Quantity
- Bid Price
- Other Relevant Details
With the instruction to the bank branch to block the amount in their account. In turn, Bank will upload the details of the application provided by you in the bidding platform.
Is There Any Eligibility Criteria For Investing Through ASBA?
With effect from May 1, 2010, All the investors are allowed to invest in Public Issues through ASBA.
In right issue, all the shareholders are allowed to use ASBA for making application provided he/she:
- is holding shares in dematerialized form and has applied for entitlements or additional shares in the issue in dematerialized form.
- has not renounced its entitlements in full or in part.
- is not a renouncee.
- who is applying through blocking of funds in a bank account with the Self Certified Syndicate Bank.
What Are The Advantage Of Applying IPO Application Through ASBA Over Traditional Methods?
- Investors can earn interest on their money in the bank account while the share allotment is finalized.
- Investors need not have to bother about refunds of the application money as application money remains the applicant account till the allocation process gets done.
- The application form is simpler.
- Rather then dealing with an unknown intermediary investor deals with his own bank.
Is It Mandatory To Have A Bank Account In The Bank Specified In The List Of SCSBs For Submitting ASBA Application?
Yes, ASBA can be submitted to the SCSB with which the investor is holding the bank account.
How Many Applications Are Allowed To Be Made By The Investor From A Bank Account?
Investors are allowed to make Five applications from a bank account per issue.
Can An Investor Made Application Through ASBA Allowed To Withdraw Bids?
Yes, investors are allowed to withdraw ASBA bids.
During Bidding Period :- Investor need to submit a duly signed withdrawal request with your application number, TSR number, if any to the same bank branch in which he had submitted the ASBA.
After Bid Closure :- The investor can send his withdrawal request to the registrars but before the finalization of basis of allotment.
On Rejection Of IPO Application Form Through ASBA, Whom Should An Investor Contact For Clarification?
For any kind of clarification, first investor should contact the SCSB. In case of further clarification or unsatisfied response from SCSB, investor can write to SEBI at the Following address:-
Investor Grievance Cell, Office of Investor Assistance and Education,
Securities and Exchange Board of India
Plot No.C4‐A,’G’ Block, Bandra Kurla Complex,
Tel: +91‐22‐26449000 / 40459000
Fax: +91‐22‐26449016‐20 / 40459016‐20
If Investor Withdraw His Bid Made Through ASBA, How Long Will It Take To Unblock The Money Secured By SCSB Against The IPO Application?
During Bid Period:- If withdrawal request is made during the bidding period, the SCSB will delete the bid made by the investor and unlock the application money in the bank account.
After Bid Closure:- If the withdrawal request is made after the bid closure, the SCSB will unlock the application money after getting instruction from the registrar (After finalization of basis of allotment).