ASBA can be highly beneficial to anyone who wants to invest in an Initial Public Offering(IPO) but finds the process intimidating and time-consuming. This is a completely digital process in which you can fill out the IPO application on your phone. In addition, your money is safe and will be refunded if you do not receive the allotment.
As the name implies, an Initial Public Offering is when a company first offers its shares to the public. These shares are traded in the primary market, as investors buy shares for the first of that particular company. Investors have to fill out an application form to get the allotment.
Filling out an IPO form can be difficult and time-consuming. Even though the process of applying for an IPO has become more convenient than in the past, there are still a few drawbacks. Previously they had to get the application form from the broker's office and then spend hours manually filling it out. In addition, investors must submit the documents and a signed cheque ahead of time. There was no way to fix any unintentional errors. Ordinary investors could not apply for an IPO initially; only financial institutions could.
But now everything is digital. There is no need to gather the application form or spend hours filling it out. Until recently, investors had to be concerned about their money if they did not receive an allotment in the IPO. Will they be fully refunded? To address these issues and others, the Securities Exchange Board of India (SEBI) implemented ASBA in 2008. Streamlining and modernizing the IPO filing process, making it easier for investors to participate in the IPO.
What is ASBA?
Applying for IPOs has never been as easy as it has become today, thanks to ASBA abbreviated for Application Supported by Blocked Amount.
SEBI introduced StockInvest in 1993 to counter the different problems investors faced while applying for IPO. The fundamental objective of this initiative was to safeguard the investors' money if they could not get allotted for an IPO and provide easy refunds. However, this endeavour was ineffective and did not receive favourable feedback from investors. A decade later, in 2003, SEBI pulled out StockInvest. People weren't tech-savvy, and they were sceptical about its authenticity. Due to the prevalence of online fraud, they were also concerned about digital security.
Because SEBI discontinued the StockInvest scheme, SEBI faced a challenge in completing the goal for which StockInvest was originally launched. In 2008, they developed the Application Supported by Blocked Amount (ASBA). This scheme eliminates any room for fraudulent activities by connecting funds directly through your bank account and enforcing strict KYC regulations.
The term "Application Supported by Blocked Amount" (ASBA) refers to an investor's request to Self-Certified Syndicate Bank (SCSB) to block funds in the applicant's bank account for subscribing to an IPO, up to the amount of the application money until the issue is fully allotted, withdrawn or fails, or the application is withdrawn or rejected.
ASBA's eligibility criteria for buying bids
Here is the criteria list for applying through ASBA:
- Only Indian citizens can apply for an IPO through ASBA
- It is mandatory to have a PAN card number
- To have a digital Demat account with a certified brokerage firm
- Your bank account should comprise enough balance available to block the funds
- You need to have an account with an SCSB (Self-certified Syndicate Bank), the bank capable of providing ASBA. On the SEBI website, you can check if your bank is an SCSB.
There are a few things to keep in your mind:
- There is no way to amend it once your bid is set.
- Bidding is not permitted in the reserved category.
- The bid cannot be higher than ₹2 lakhs for retail investors
- Only a maximum of three bids can be accepted.
Advantages of applying an IPO through ASBA
1. Receive interest on blocked money
Your money can become blocked for an extended period. When you apply through ASBA, you will receive interest on the money, which is blocked even if you do not receive the allotment. This way, you can interest on your blocked account.
2. Hassle-Free
There could not be a better option for applying to IPO than ASBA. Log in to your bank account, choose the IPO you want to apply for, enter the quantity to buy, select the price, and invest. It doesn't take hours to complete the form or visit the broker's office
3. Quick & Easy Refunds
Some factors help you to increase your chances of receiving the allotment, but there is no guarantee you will. You can invest with ASBA and feel secure about your money. Your funds would get refunded to your bank account immediately if you did not get the allotment.
4. Zero Charges
The service is free of additional charges or hidden costs. Every Self Certified Syndicate Bank provides the option for applying through ASBA free of cost.
5. Safeguard your money
The company that issues the IPO cannot access your funds until the shares are allotted in your Demat account. While computing the Average Quarterly Balance, the blocked amount is considered.
6. Go Paperless
The application process is paperless, and you need not submit any documents or checks beforehand. You can do it through net banking, which is entirely digital.
A step-by-step guide to applying for an IPO with ASBA
It is obvious to look at the steps to apply after learning how comfortable, convenient, and quick filling an IPO can become with ASBA. This section provides a simple process for applying for an IPO with ASBA.
The foremost requirement for applying for an IPO through ASBA is to have an active bank account in a Self Certified Syndicate Bank (SCSB). These banks have the option of ASBA available for the customers. Another prerequisite is that you have a digital Demat account.
Following that, you will need to obtain the IPO allocation form. It is possible to obtain these forms both online and in paper format. If you prefer the digital process, you can find the application forms on the stock exchange websites. The applications are also available in bank branches as an alternative. To apply through an SCSB, you must have an account with the organization.
You will need to provide your PAN number, Demat account number, quantity, and bid price in the application. An investor could submit a maximum of three bids for an issued IPO. The highest bid will be selected, and your respected SCSB will upload it on the bidding platform.
The application may be rejected if any discrepancy is discovered in the details. All details need to be submitted with extreme care.
What is an ASBA 3rd party IPO application?
You might need to fill out IPO applications for your friends and family. However, submitting multiple applications on behalf of a single applicant may result in your application being rejected. As a result, banks such as Kotak Mahindra, SBI, and Axis Bank, among others, offer a service that allows you to submit up to five applications using a single bank account. It is critical to note that each application requires the applicant's PAN card number, and you can only use one PAN card number for one application.
Why might your application get rejected?
When applying for an IPO through ASBA, you must take care of the following points, or the application might get rejected.
- If your bank account does not have sufficient funds for the required transaction, the issuer will reject your application.
- If the PAN card number does not match the given Demat account
- Errors in the submitted details will result in the application being rejected
- Any variance found in the details
- Submitting multiple applications, either through ASBA or non-ASBA methods.
Frequently Asked Questions (FAQs):
Q. Where can I obtain ASBA application forms?
You can download it digitally from the NSE (National Stock Exchange of India) or BSE (Bombay Stock Exchange) websites. If you prefer an offline method, you can obtain the application forms from the designated SCSB branches.
Q. Can I submit the application form at any SCSB?
The answer is no. Your application can only be submitted to the banks if you have an active bank account with that bank.
Q. Does ASBA block all my funds?
ASBA only blocks funds that have been authorized in the application, and you can freely access the rest.
Q. What if I did not get an allotment? Will I get a full refund?
The application funds will be unblocked when the Registrar directs the SCSB to unblock the funds from the bank accounts. Yes, you will receive a full refund right away.