The Application Supported by Blocked Amount, commonly known as ASBA, is a mechanism that has been introduced by the Securities and Exchange Board of India (SEBI) to simplify the process of applying for initial public offerings (IPOs), rights issues, and other public offerings of securities.
ASBA Full Form: Application Supported by Blocked Amount
Before the introduction of ASBA, investors had to make payment for their IPO applications through cheques or demand drafts, which had to be attached with the physical application forms and submitted to the designated banks or brokers. This process was not only time-consuming but also cumbersome and prone to errors.
With the introduction of ASBA, the payment process for IPO applications has become more efficient and transparent. In this article, we will discuss the ASBA full form, its features, benefits, and how it works.
What is ASBA?
ASBA stands for Application Supported by Blocked Amount. It is a process that enables investors to apply for IPOs, rights issues, and other public offerings of securities without the need to transfer funds from their bank accounts.
In the ASBA process, the investor’s bank account is only blocked with the amount of money required to pay for the securities applied for. This amount is blocked until the allotment of shares is finalized. Once the allotment is done, the blocked amount is released and the investor’s bank account is debited only for the final allotment amount.
Features of ASBA
The ASBA process has the following features:
- No need for physical payment instruments: Investors do not need to make payment through cheques or demand drafts. The payment process is entirely online, and the funds are blocked in the investor’s bank account until the allotment is finalized.
- Partial blocking of funds: Investors can block only a portion of the required amount in their bank accounts, which can be increased or decreased until the closure of the IPO bidding process.
- ASBA application can be revised: Investors can revise their ASBA applications until the closure of the IPO bidding process.
- ASBA is available to all investors: ASBA is available to all investors, including retail investors, high net worth individuals (HNIs), and institutional investors.
Benefits of ASBA
The ASBA process has several benefits for investors, issuers, and intermediaries. Some of these benefits are:
- Faster refund of unallocated funds: With ASBA, the unallocated funds are released immediately after the IPO allotment is finalized, enabling faster refunds to investors.
- Improved transparency: The ASBA process is entirely online, and investors can track the status of their application at every stage of the process.
- Reduced errors and omissions: The ASBA process eliminates the need for physical payment instruments and reduces the chances of errors and omissions.
- Cost-effective: The ASBA process reduces the cost of printing and distributing physical application forms and payment instruments.
- Better allocation of securities: ASBA enables better allocation of securities as it eliminates multiple applications from the same investor.
How does ASBA work?
The ASBA process involves the following steps:
- Registration: The investor needs to register with a bank that offers ASBA services. The bank provides the investor with a unique identification number (UIN) and other necessary details.
- Application: The investor fills in the IPO application form and selects the ASBA option. The investor mentions the UIN provided by the bank and the amount to be blocked for the application.
- Authorization: The investor authorizes the bank to block the required amount in the bank account.
- Validation: The bank validates the application and checks the availability of funds in the investor’s bank account.
- Blocking of funds: Once the application is validated, the bank blocks the required amount in the investor’s bank account. The amount remains blocked until the allotment of shares is finalized.
- Allotment: Once the IPO allotment is finalized, the bank releases the unallocated amount back to the investor’s bank account.
- Payment: The bank debits the investor’s bank account for the final allotment amount, and the shares are credited to the investor’s demat account.
Conclusion
ASBA is a mechanism that has revolutionized the process of applying for IPOs and other public offerings of securities. It has simplified the payment process, reduced errors and omissions, improved transparency, and enabled better allocation of securities.
ASBA is available to all investors, and it has several benefits for investors, issuers, and intermediaries. The ASBA process is entirely online, and investors can track the status of their application at every stage of the process.
In conclusion, ASBA has made the process of investing in public offerings of securities more efficient, transparent, and cost-effective.