- Date : 29/11/2020
- Read: 4 mins
ASBA has a few benefits that are worth knowing while investing in IPOs. Here's all you need to know before using your SCSB account.
Indian stock market regulator SEBI (Securities and Exchange Board of India) has enabled a convenient payment mode for those looking to invest in IPOs (Initial Public Offerings). Called ASBA (Applications Supported by Blocked Amount), this payment form is allowed for book-built issues with a uniform payment option to the individual retail investors. ASBA is also allowed for rights issues on a trial basis, subject to some conditions.
What is ASBA, and how does it help?
ASBA can be explained as an application that blocks the required money for the IPO application in the applicant’s own bank account. Before payments through ASBA were allowed, investors in IPOs had to enclose demand drafts or cheques of the amount needed for the number of shares applied for.
Under ASBA, however, the bank simply holds a lien on the investor deposits for the application amount. This means that the money remains in the bank, and the applicant's account doesn't get debited until the shares are actually allotted to them.
ASBA has solved two financial issues related to applying for IPO shares: (i) The blocking of funds prior to the allotment of shares, and (ii) The painful process of getting a refund in case the application is unsuccessful, and shares are not allotted, or fewer shares are allotted in pro-rata allotment.
In other benefits, the money in the account continues to earn interest, and the application form itself is simpler. The money also remains with a known intermediary - the applicant's bank. It is not compulsory and allows investors to choose either ASBA or the old system of sending cheques.
Related: ASBA And IPOs: All You Need To Know
Can I apply for an IPO from any bank?
Applying for an IPO through ASBA can be done only through banks considered capable of providing ASBA services. These Self-Certified Syndicate Banks (SCSBs) and their designated branches are authorised to block the IPO allocation amounts in the retail investor's accounts until the allotment is finalised.
It is a win-win method, as the issuer company is guaranteed the funds in case the investor is allotted shares in the IPO, and the benefit for the investor is that their funds remain in their account. The investor can use only an SCSB bank with whom they have a bank account. A list of accepted SCSBs can be seen on the websites of SEBI, BSE, and NSE.
How many IPO applications can be made from one bank account using ASBA?
The applicant holding a bank account in an SCSB bank can make up to five applications per issue from the bank account.
Related: All About IPOs In India
Is there a better chance of allotment if I apply for an IPO through ASBA?
ASBA has many benefits - the application process is easier, funds do not leave the investor’s account, there is no hassle getting a refund, and w.e.f. 1 April 2010, investors earn interest on the blocked amount as banks have started paying this. But ASBA does not provide a preferential benefit in chances of allotment of shares.
Can I apply for an IPO in the name of a family member or friend from my savings bank account?
The payment may be made through the same bank account, but the name, Demat account, and PAN should be different on the application. So yes, you can apply in the name of family members and friends from your own savings bank account. In the case of ASBA bank account, a maximum of five applications can be made from the same account.
Related: Important Things To Know Before Investing In The Stock Market
Can I apply for an IPO from multiple accounts?
The same person can apply only once for each IPO from their Demat account. As a rule, no one can apply multiple times through more than one application for an IPO. If you file multiple applications with the same name or same Demat account or same PAN, all of your applications will be rejected.
How can I increase my chances of getting an IPO allotment?
It is important to note that ASBA or non-ASBA applications get no preferential treatment for allotment of shares. But there are some simple ways in which you can increase your chances of getting allotted IPO shares. Experts say that to increase your chances of allotment, you can apply with multiple Demat accounts, choose the cut-off price as your bid price for application, and ensure that your form is technically correct to avoid rejection. In some cases, holding the parent or holding company shares may give you an additional benefit as well.
Related: Is Your IPO Rightly Valued?
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.
Indian stock market regulator SEBI (Securities and Exchange Board of India) has enabled a convenient payment mode for those looking to invest in IPOs (Initial Public Offerings). Called ASBA (Applications Supported by Blocked Amount), this payment form is allowed for book-built issues with a uniform payment option to the individual retail investors. ASBA is also allowed for rights issues on a trial basis, subject to some conditions.
What is ASBA, and how does it help?
ASBA can be explained as an application that blocks the required money for the IPO application in the applicant’s own bank account. Before payments through ASBA were allowed, investors in IPOs had to enclose demand drafts or cheques of the amount needed for the number of shares applied for.
Under ASBA, however, the bank simply holds a lien on the investor deposits for the application amount. This means that the money remains in the bank, and the applicant's account doesn't get debited until the shares are actually allotted to them.
ASBA has solved two financial issues related to applying for IPO shares: (i) The blocking of funds prior to the allotment of shares, and (ii) The painful process of getting a refund in case the application is unsuccessful, and shares are not allotted, or fewer shares are allotted in pro-rata allotment.
In other benefits, the money in the account continues to earn interest, and the application form itself is simpler. The money also remains with a known intermediary - the applicant's bank. It is not compulsory and allows investors to choose either ASBA or the old system of sending cheques.
Related: ASBA And IPOs: All You Need To Know
Can I apply for an IPO from any bank?
Applying for an IPO through ASBA can be done only through banks considered capable of providing ASBA services. These Self-Certified Syndicate Banks (SCSBs) and their designated branches are authorised to block the IPO allocation amounts in the retail investor's accounts until the allotment is finalised.
It is a win-win method, as the issuer company is guaranteed the funds in case the investor is allotted shares in the IPO, and the benefit for the investor is that their funds remain in their account. The investor can use only an SCSB bank with whom they have a bank account. A list of accepted SCSBs can be seen on the websites of SEBI, BSE, and NSE.
How many IPO applications can be made from one bank account using ASBA?
The applicant holding a bank account in an SCSB bank can make up to five applications per issue from the bank account.
Related: All About IPOs In India
Is there a better chance of allotment if I apply for an IPO through ASBA?
ASBA has many benefits - the application process is easier, funds do not leave the investor’s account, there is no hassle getting a refund, and w.e.f. 1 April 2010, investors earn interest on the blocked amount as banks have started paying this. But ASBA does not provide a preferential benefit in chances of allotment of shares.
Can I apply for an IPO in the name of a family member or friend from my savings bank account?
The payment may be made through the same bank account, but the name, Demat account, and PAN should be different on the application. So yes, you can apply in the name of family members and friends from your own savings bank account. In the case of ASBA bank account, a maximum of five applications can be made from the same account.
Related: Important Things To Know Before Investing In The Stock Market
Can I apply for an IPO from multiple accounts?
The same person can apply only once for each IPO from their Demat account. As a rule, no one can apply multiple times through more than one application for an IPO. If you file multiple applications with the same name or same Demat account or same PAN, all of your applications will be rejected.
How can I increase my chances of getting an IPO allotment?
It is important to note that ASBA or non-ASBA applications get no preferential treatment for allotment of shares. But there are some simple ways in which you can increase your chances of getting allotted IPO shares. Experts say that to increase your chances of allotment, you can apply with multiple Demat accounts, choose the cut-off price as your bid price for application, and ensure that your form is technically correct to avoid rejection. In some cases, holding the parent or holding company shares may give you an additional benefit as well.
Related: Is Your IPO Rightly Valued?
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.
