by ASBA (Application Supported by Blocked Amount) is a process that allows investors to apply for shares in an Initial Public Offering (IPO), Follow-on Public Offering (FPO), Rights Issue, or any other securities offering, where the application amount is blocked in the investor’s bank account, rather than being debited. This ensures that the funds are not immediately transferred and are only blocked until the final allotment of shares is made. The ASBA system was introduced by the Securities and Exchange Board of India (SEBI) to streamline the IPO application process and protect investor interests.
The ASBA facility is provided by banks that are authorized by SEBI to process such applications. It helps investors to apply for public offerings in a more secure, efficient, and hassle-free manner. Under this mechanism, the investor’s application amount is not deducted from their account but is merely blocked by the bank. This enables the investor to earn interest on their funds until the shares are allotted.
How ASBA Works?
- Investor Registration:
To apply for IPOs using ASBA, the investor must have a Demat account and a bank account that supports the ASBA facility. The investor also needs to be registered with the bank for the ASBA service.
- Filling the Application:
The investor fills in the IPO application form available with the designated bank. The form can be filled online or physically at the bank’s branch.
- Blocking the Amount:
The bank blocks the required funds in the investor’s account for the application amount, which is an amount equal to the total value of the shares applied for, at the issue price.
- Submission of Application:
Once the application is completed, the investor submits the form to the bank, either physically or through an online platform. The bank will then validate the application and block the necessary funds.
- IPO Allotment Process:
If the IPO is oversubscribed, the shares are allotted on a pro-rata basis or as per the allocation method. If the investor is allotted the shares, the blocked amount is debited from their bank account. If the investor is not allotted any shares or is allotted fewer shares than applied for, the unblocked amount is released by the bank.
- Release of Blocked Funds:
If the investor does not receive the allotment or if the issue does not go through, the bank releases the blocked amount after the finalization of the allotment process.
Features of ASBA
- Investor Control Over Funds:
In the ASBA process, the investor’s money remains in the bank account until the final allotment of shares. This ensures that the funds are not transferred unless the investor is allotted the shares, providing better control over their funds.
- Interest on Blocked Amount:
Since the funds are blocked, the investor can still earn interest on the blocked amount, which is not possible in traditional methods where money is debited immediately.
- Security and Transparency:
ASBA system enhances security as the investor does not have to worry about fraud or misuse of funds. The process is transparent, with the application money being blocked in the account and only released after the allotment process is completed.
- No Risk of Overdraft:
ASBA ensures that the funds are only blocked and not debited unless the shares are allotted, thus preventing the possibility of overdrawing the account or spending money that is earmarked for the IPO.
- No Requirement for Physical Application Forms:
ASBA allows investors to apply for IPOs online or through their banks’ digital platforms, reducing the need for physical forms and paperwork.
Advantages of ASBA
- No Immediate Deduction of Funds:
The main advantage of ASBA is that the investor’s funds are blocked, but not debited, until the shares are allotted. If shares are not allotted, the amount is immediately unblocked.
- Reduction in Fraud and Errors:
As the ASBA process is fully electronic, it eliminates the risk of errors and fraud that may occur in the traditional application process. There is no risk of the application fee being misappropriated.
- Reduced Workload for Issuers and Bankers:
ASBA process reduces paperwork and the physical movement of forms, which cuts down the operational workload for both the issuer and the bank, improving efficiency.
- Eligibility for Interest:
The blocked amount in the investor’s account can continue to earn interest, making it more advantageous than the earlier process where the money was deducted from the account without earning any return.
- Faster Refunds:
Since the money is blocked instead of being debited, in case of non-allotment of shares, refunds are processed faster and more efficiently.
- Applicable for All Categories:
ASBA is applicable for retail investors, qualified institutional buyers (QIBs), and non-institutional investors.
Disadvantages of ASBA:
- Limited to SEBI-Approved Banks:
ASBA system is available only through certain SEBI-authorized banks. Investors may not be able to use this facility if their bank does not support it.
- Manual Errors:
In the case of physical ASBA applications, there may be the possibility of human errors such as incorrect filling of the application form or mistakes while blocking the amount.
- Requires Demat Account:
The investor needs to have a Demat account to participate in the ASBA process, which might be a disadvantage for those who do not have one.
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Limited Availability of ASBA for Some Offers:
While ASBA is widely used for IPOs, it may not be available for every public offering or other securities offerings, such as private placements or specific mutual fund schemes.
