SEBI introduced a new payment option ASBA (Application Supported by Blocked Amount) as an additional payment mechanism for the benefits of certain investors applied in IPO (Initial Public Offers). This option would be available to retail investors only. It is also an exclusively available payment option for the investors applying in right issue of shares, which means the additional shares offered to existing share holders of a listed company based on preference. According to the investors who experienced this new trend application, it is definitely a 100% success from SEBI’s new application. With this payment option the application money remains in the investors account until the shares are released. So no money is goes out from the investors account.
Do you know what IPO is? IPO means “When a company offers its shares for sale to the general public for the first time”. In simple words “first sale of shares to the public by any company”. The maximum amount the retail investors can invest in IPO is Rs 1 lakh.
Advantages of IPO
- Raising capital:
Capital amount collected for the IPO process can be used to satisfy the various needs of the particular company.
- Generates publicity:
With the help of IPO, each company advertises their different financial products to the general public, there by increases their publicity.
ASBA enables the investors to apply for IPOs with out making a payment. Generally when one applies for shares, the investor has to make the full payment and the entire money is credited in to the company’s account. But by this facility the amount is blocked in investors account during the entire IPO process. When the allotment of shares is finalized, a proportionate amount related to the share only goes out from the account. The amount equivalent to the shares allotted is only deducted and the block is removed for the remaining amount, thus you have to invest it again. During this process the investors would not have to pay the amount up front, the amount would be retained in the investors account till the shares are allotted. If there is no allotment, the amount would be easily released and the investors would be able to use it in their own way.
SEBI has issued a list of Self Certified Syndicate banks (SCSB), which are authorized in dealing with ASBA process. The process of ASBA in IPO is simply as follows. First of all, SCSB accept retail individual investors bid for IPO shares at cut off price through online system or through the branches enrolled under them. The bank supplies IPO application number along with the acknowledgement. Then the bank blocks the account of the investor who applied for IPO shares. If there is no sufficient amount for the transaction, the application will be rejected. The bank sends details to the stock exchanges for that IPO. The IPO registrar receives the apt information from the stock exchanges and validates the bid. After the allotment process the registrar send request to the SCSB for the transfer of money. After the amount is credited, the allocated shares are transferred in to the Demat account of the investor. The list of banks enrolled under SCSB and other detailed information about ASBA would be available from SEBI’s website.
1. It provides relief to the investors from the delay in refunds.
With this new payment mode, the amount for the allotted share only deducted from the blocked account and balance amount is refunded as soon as the allotment is over.
2. It prevents the loss of interest income.
There is no loss of interest income, as the amount is not paid up front (blocked only, amount would be retained in the account till the allotment process ends).
3. It also reduces the market time:
Time gap between the entire IPO process (allotments of share, deduction of the share value, refund the balance amount etc) is very less.
Today, ASBA becomes very popular as it reduces the time gap between the different procedures in IPO process. As we are on the era of fast life, every second has its own value. Hence we should conclude that ASBA ensures time value for the market process and assure maximum outcome. All the analysis and reports from 2008 onwards reveals that ASBA is a good plan from SEBI as it serves as a good financial aid.