Whenever a company is wanting to raise it money by the way of an Initial Public Offering or IPO, three different categories of investors make a bid for it – Retail Individual Investors (RII), Qualified Institutional Bidders (QIB) as well as Non-Institutional Investors or High Net-worth Individuals (HNI). Thus, if you are a retail investor who is wanting to make an investment in an IPO, you can make the concerned investment by the way of Application Supported by Blocked Amount (ASBA). It has been made compulsory to apply via ASBA for all the public issues opening on or after the 1st of January, 2016.
What is ASBA?
ASBA or Application Supported by Blocked Amount is considered to be a mechanism using which a retail investor can get his/her amount in his savings account and block it until all the shares in the Initial Public Offering are allocated to the investor. This facility was introduced by the SEBI Bank in the year 2010. The idea behind the launch of ASBA is very simple – if the shares are allocated to you, all the corresponding amount shall be deducted from your bank account. Moreover, if you do not get any allocation of the Initial Public Offering, no such amount shall be deducted from your bank account and the amount shall remain unblocked for all your use.
Out of all the three kinds of investors who make their investment in the IPO, general mass is mostly implied on the Retail Individual Investors who are considered to be the closest ones in terms of making their bids in the Application Supported by Blocked Amount (ASBA).
The bidding is happened through the Self Certified Syndicate Banks (SCSB) which tend to satisfy all the conditions that are put forth them by SEBI. All the investors who are looking forward to apply for an initial public offering have an account in any of these banks. In the return of it, the banks take the consideration of following things:
- Accepting the applications regarding an Initial Public Offering (IPO)
- Verifying all the applications.
- Blocking the amount so bid in the investor’s account.
- Once verified, uploading all the details as to the application to the bidding system of the exchange.
Eligibility for ASBA:
In order to be eligible for ASBA, you are required to fulfil the following conditions:
- You should be a citizen of India.
- Your application should be up to a total of Rs.2 lakh for the securities and shares. Retail investors cannot apply for an amount more than Rs.2 lakh.
- You shall not bid under any other reserved categories.
- You shall not revise the bidding so made.
How to apply online through ASBA?
Applying online through Application Supported through Blocked Amount is not a rocket science. Being an investor, you are required to take into consideration the following steps. Most of the prominent banks such as HDFC, ICICI, Axis Bank, etc. provide you with an online facility to apply for an Initial Public Offering online. Here are the steps that you are required to follow while applying online through ASBA:
- You are required to log in into your bank account.
- Fill the option of DEMAT and ASBA services or IPO application.
- Fill in the form with all the requisite details.
- Enter all the important information related to your PAN card, DEMAT account number, IPO bidding details, etc.
- Perform the verification step by the way of either OTP or registered mobile number.
- Submit all the relevant application details such as DP ID, PAN card, Bank account number, Client ID, Bid quantity and many others.
How to apply offline through ASBA?
You can also apply for the Initial Public Offering through ASBA using an offline method. Some of the banks do not give you a chance of applying through ASBA online and that is where your offline methods come to an escape. Here is the procedure to apply for IPO through ASBA offline:
- Visit any of the NSE website and form the e-Forms of ASBA.
- Select the Initial Public Offering that you are looking to apply for.
- Submit all the relevant details as asked during the procedure.
- Download the concerned form.
- Find the closest branch of your bank and submit the form so filled along with a copy of your PAN card.
If a comparison is to be made in between these both modes of application, online method is considered to be a more convenient method than the offline one. Thus, if you are planning to apply regularly for the initial public offerings, it is always suggested and recommended to open a bank account with the bank that supports a provision of online ASBA.
Advantages of using ASBA for an IPO:
There are a number of benefits of using ASBA for an Initial Public Offering. Below listed are a few of them:
- You are at the opportunity to earn interest on all the blocked funds till the time either you get all your shares or your blocked amount gets unblocked.
- The amount gets debited from your bank account only when the concerned shares get allocated into your account.
- You can make the submission of a total of five applications from a bank account using Application Supported by Blocked Amount.
- You are always at the option of cancelling your bid for the IPO before the bids for IPO come to a closure. This can be done very conveniently by the way of sending a request of cancellation to the registrars who are concerned in the business. The registrars then coordinate with the banks to serve your purpose.
- You can make the use of the same process while applying for the right issues, follow on public offers and many others.
- Applying for IPOs using ASBA do not create any problems in terms of refunds as the amount gets debited from the bank account only if the shares are allocated to you.
There does not arise any question of trusting the third party since your own bank comes forth to be a part of the transaction