ASBA stands for “Application Supported by Blocked Amount”.
It is basically an application mechanism for subscribing to IPOs.
Read More: Understanding Initial Public Offer (IPO)
It ensures that until the shares are allotted to the applicants, the money will remain in his or her bank account.
However, the applicant is required to give the authorization to block the applicant money while subscribing to the IPO.
It was launched in the year 2008 for the retail investors which have now been extended to HNIs and corporate investors from 1st January 2010.
Detailed mechanism of applying in IPO through ASBA process
The investors under “Application Supported by Blocked” can apply in any public issue or right issue through their bank account.
An investor needs to collect the ASBA form available at designated bank branches and fill the necessary details like applicant’s name, demat account number, PAN number, bid price, bid quantity and other required details.
Thereafter submit the form and instruct the bank branch to block the amount in their account.
Please ensure that the details in the ASBA forms are given correctly, otherwise, it will be rejected.
Also, know whether investing in an IPO is a value or trap.
Advantages of applying through ASBA vis-a-vis through cheque
It is an alternative way of applying in IPO or FPO through the book building route unlike the current process of using cheque as a payment mode.
The application through ASBA involves the following advantages-
1. The investor continues to get the interest on the application amount since the money is still there in the bank account.
2. The investor need not bother for refunds as under “Application Supported by Blocked”, the money to the extent of securities allotted is deducted from the account and only when the application gets selected for the allotment.
Want to know more about ASBA and other IPO terms? Enroll for: NSE Academy Certified Capital Market Professional (E-NCCMP) course on Elearnmarkets.com.
Who can apply through ASBA process?
An investor can opt for ASBA process in an IPO through book building route on meeting the following conditions-
1. The individual should be a retail investor i.e. the investment amount should be up to Rs 1,00,000.
2. The person has applied through blocking of funds in a bank account through SCSB.
3. The person has agreed not to revise the bid.
4. He/she is not bidding under any reserved categories.
Application Supported by Blocked has been made mandatory for all public issues after 1st Jan 2016. However, you cannot make application for all issues through ASBA process.
It’s applicable only for a book built public issues so that uniform payment option is provided to all retail investors.
SEBI has also allowed ASBA for selected right issues.