ASBA Meaning, Benefits, and Process

One way to get good returns on your investment is to invest in Initial Public Offerings (IPOs). However, the process of participating in an IPO needs to be straightforward, easy, and reliable. Previously, investors had to wait three months for their share allotment without earning any interest on the blocked amount. 

Luckily, this process became more manageable for investors after the Securities and Exchange Board of India (SEBI) introduced the ASBA (Applications Supported by Blocked Amount) in 2008, which became mandatory in 2016. 

In this blog post, we will delve deeper into the ASBA process, its benefits, its eligibility criteria, and its application process, both offline and online.

What is ASBA and How Does it Work?

During the 90s, applying for an initial public offering (IPO) was a challenging process. Investors who wanted to apply for an IPO had to fill out a form and send a check to their banker or broker in a fixed price issue. Additionally, it takes around three months to receive notification regarding the IPO allocation, and applicants didn’t receive any interest on the blocked amount.

 However, the introduction of ASBA, or Applications Supported by Blocked Amount, by the Securities and Exchange Board of India (SEBI) fundamentally changed the IPO application landscape. The ASBA restricts the number of IPO applications exclusively for the duration of the application window. 

In this case, the money gets blocked in your bank account to the extent of application value and will not be deducted until the shares are issued to you and credited to your demat account. If the shares are not issued to the applicant, the money will get unblocked in their bank account. The exciting part is that you would still be able to receive interest on your blocked amount.  Now, all applications are submitted exclusively via ASBA or Applications Supported by Blocked Amount mode. 

Benefits of ASBA

There are many advantages to investing in an IPO through the ASBA procedure; a few of these are listed below:

• Interest – While applying for an IPO, your fund will be blocked in your bank account, but you continue to earn interest on it, which means you do not lose an opportunity to earn income from the blocked fund.
• Simple – Applying in IPO through ASBA eliminates the lengthy documentation and payments of cheques, as this process is entirely digital.
• Easy Refund – If you have not been allotted any shares in the IPO, your money will be unblocked and released into your bank account.
• Average Balance – To prevent fines for failing to maintain the required balance, the money applied through ASBA is simply blocked in your bank account rather than removed, as different banks determine the average quarterly balance in your account.
• Transparency – ASBA is a secure process in which an investor personally authorizes to block the amount in their bank account. Both the bank and the Securities and Exchange Board of India oversee the process, which minimizes the risk of fraud.
• Prompt Action – Through ASBA, one can immediately apply for the IPO, and the blocked amount will be promptly refunded to your bank account. 

Eligibility Criteria for ASBA

The eligibility criteria for using the ASBA facility are as follows-

1. The ASBA process can be used by any individual who is a resident of India.

2. To use ASBA, an applicant needs to have a Demat account and a Permanent account number (PAN).

3. Individuals need to have a bank account with a Self-Certified Syndicate Bank (SCSB).

4. Investors should have sufficient funds in their bank account to cover the bid amount.

How to Apply for ASBA?

Investors can apply either online or offline, depending on their preferences. Here are the processes mentioned below: 

Online ASBA Application method

Applying for an IPO through the ASBA facility is an easy and faster process; you can apply through Net Banking or your Demat account:

Net Banking:  An investor can apply through their net banking for an IPO; here are the steps mentioned below-

•   An investor is required to log in to their net banking application.
•  Select the IPO section from the listed applications.
•  You will be redirected to the application form.
• You need to fill out the required details, including your name, PAN card number, bid price, bid quantity, and the 16-digit unique DP number.
• Then click on the submit button, and your application will be submitted successfully, and the amount will be blocked in your account.
• After applying for an IPO through the ASBA process, you can check your application on the NSE or BSE website.

Demat Account: The other platform on which you can apply through ASBA is as follows-

• Login to your demat account using login credentials.
• Once you log into the demat account, go to the IPO section.
• Select the IPO in which you wish to apply, and enter the bid quantity and bid price.
• Then, you will be required to enter the details of the bank’s UPI, which is registered with your demat account.
• You will receive a UPI mandate request in your mobile application after applying.
• Approve the request received on your mobile UPI app, and after completing this step, your IPO application will be submitted successfully.

Offline ASBA Application method

Applying an IPO through an offline method, you need to follow some steps, which are mentioned below:

• The investor is required to download the ASBA form from the NSE and BSE websites.
• You need to fill in the details like your name, your PAN card number, Demat account number, bid quantity, bid price, bank account number and Indian Financial System Code(IFSC).
•  Submit the application form at the Self-Certified Syndicate bank and collect the acknowledge receipt. 
•  The SCSB will verify your application form and block the bid amount in your bank account.
• The bank will upload the details to the bidding platform.
• It’s necessary to ensure that the details provided in the ASBA form are correct to avoid being rejected.

Can You Cancel an ASBA Application?

You can cancel your application anytime till the issue is open for bidding. After cancelling the application, your money will be unblocked and will be available the next day.

Conclusion

In conclusion, the Securities and Exchange Board of India (SEBI) made the process of applying for an initial public offering (IPO) much easier, safer, and more transparent in 2008 when it introduced the Applications Supported by Blocked Amount or ASBA method. Retail investors are encouraged and empowered to apply for initial public offerings (IPOs) and take part in the expansion of new businesses. Previously, applying through ASBA was the only option, but now, after 2016, it has become mandatory to apply for an IPO. IPOs contain a lot of risk, so it’s better to consult with your financial advisor before making any investment decisions.

Frequently Asked Questions (FAQs)