ASBA’s an ‘interesting’ way to invest in IPOs

The BSE Sensex has already crossed 19000 and is headed to touch historical highs. Taking advantage of this market euphoria, many companies are coming out with IPOs. Coal India Ltd is coming out with the biggest IPO in the Indian history to raise approximately Rs12,000 crore. More companies will follow suit either to raise capital or to comply with Sebi condition of 25% floating stock. In view of a flurry of IPOs expected in the immediate future, readers must know about Application Supported by Blocked Amount (ASBA) way, which will make their participation in IPOs more profitable.

The facility was introduced by the Securities & Exchanges Board of India (Sebi) in July 2008 but it is not yet known to many.

How does ASBA work?
Under the normal system while making an application for an IPO you have to pay the full fee when you submit the application. With ASBA, you can make an application for shares without actually parting with your money immediately.

Under ASBA, every application for shares is supported by an amount, which is blocked in the account of the applicant. The money is debited from your bank account only when basis of allotment is finalised and only for number of shares allotted to you. This eliminates problems associated with delay in receipt of refunds in case lesser shares or no shares are allotted.

Moreover, now that banks have been mandated to give interest on savings accounts on a daily balance basis, it helps those investors even more who are participating in the public issue of companies.

Moreover, money blocked in your account is considered for calculating the average quarterly balances (AQB).

Under ASBA you can make an application for any IPO/FPO/rights issue and if the company does not offer more than one schedule of payment and the issue price is to be decided by bidding process.

Where can an ASBA application be made?
You can make the ASBA application through any bank registered with the Sebi as bankers to the issue. Such banks authorised by the Sebi to accept these applications are called self-certified syndicate banks (SCSBs).

It is necessary that you need to have an account with the bank recognized by the Sebi for the purpose of accepting the ASBA applications. You can make the application under ASBA through a physical application form or through the Internet. Some banks even allow you to make application through phone banking.

Here you need to ensure that you have sufficient balance in your bank account.  Money blocked under ASBA is unblocked fully or partly as and when the shares are allotted or the issue is withdrawn.

How to make the application under ASBA?
For making application through net banking or phone banking you need to register yourself for this purpose with your bank.

Also you need to have a demat account not necessarily with the same bank through which you are making an application and a valid PAN number. 

The ASBA process cannot be used for making application for allotment of shares in physical mode. In your ASBA application, you also have to provide your banker with DP ID and client ID as per your DP account. You also need to specify the quantity you wish to bid for.

Can you revise or withdraw the application?
Yes, you can revise the bid or withdraw the application before the bid closing date by making an application for withdrawal to your bankers where you have submitted your application.

However if you want to withdraw the application after the bid closing date, you can do so before the process of allotment is completed by submitting your withdrawal application to the Registrar to the issue.
Under ASBA, the bank uploads the data in respect of applications and revisions to websites of stock exchanges electronically and does not have to send the physical copies of the application to either stock exchanges or registrar to the issue.

How does ASBA score over the erstwhile Stock Invest scheme?
The Sebi and RBI had earlier introduced a scheme for people applying to an IPO, called Stock Invest, where money used to be kept in a FD account with a bank and banks used to issue an instrument called Stock Invest, which was treated at par with cheques/draft. Under this system, full money of the Stock Invest instrument was encashed even in cases where full allotment was not made.

This resulted in blocking of entire money of the applicant in cases where part allotment was made. Moreover since refund orders were posted through physical mails it used to take a very long time for the applicants to get their refunds. Whereas, under ASBA only amount in respect of shares allotted to you is debited from your bank account. This scheme was discontinued in 2003.

So register yourself online with your bankers for availing the ASBA benefits for not only participating in an IPO but also earning interest on your savings bank amount.

The writer is CFO, ApnaPaisa.com, a price comparison engine for loans, insurance and investments. He can be reached at balwant.jain@apnapaisa.com.