ASBA will be compulsory even for Retail Investors for IPO

Today, ASBA (Application Supported by Blocked Amount) is compulsory for all Non Retail Investors for equity IPO (Initial Public Offers). However, as per the SEBI (Securities Exchange Board of India) circular dated 10th November 2015, ASBA will be mandatory for all equity IPOs (Initial Public Offers) participation, including Retail investors, with effect from 1st January 2016. Therefore, it is logical for all retail investors to understand what ASBA is and what its benefits are. Let us try to understand ASBA

ASBA means, Application Supported by Blocked Amount. Today, most of retail investors give cheque to apply for IPOs. Once you apply through ASBA, it is not required to give cheque. Instead of giving cheque, you need to fill up your bank details in the column of ASBA in the application of IPO. By this, shares application amount which you have applied for, will be blocked in your bank account. The amount will remain in your bank account but you cannot withdraw it or utilize it. Once certain shares are allotted to you, then that much amount will be transferred from your bank account. During the period, (between application and actual allotment) you can utilize your remaining balanced amount since the entire bank account is not being blocked. If you do not get any allotment then entire blocked application money will be freed or unblocked and you can then utilize it. Amount will be unblocked even when issue is cancelled.

Benefits of ASBA:
1. During the period of application till allotment, investors will continue to earn interest on their entire / complete bank balance since the amount remained in the bank account.
2. In case of non allotment or partial allotment, investors need not wait (and worry) for refund of application money since (proportionate) amount will be transferred from the bank account only on allotment.
3. ASBA will reduce the time for listing of shares on stock exchanges. As per new SEBI norms, with effect from 1st January 2016, listing is required to be done within 6 days from the closure of the issue.

Operational Issues:
One can handover applications with ASBA details to broker. Today, since the entire bank branches are connected with Core system, it is not necessary to submit application to selected designated bank-branch. You can make IPO application with ASBA details through Online as well. It is not required to do it by physical method. It is not necessary that your D Mat Account should be with your bank when you are making ASBA application. You can still maintain D Mat account with any Depository Participant (DP). Investors need to take care to fill up the correct bank details for ASBA or else there is risk of application being rejected.

Suhas Rajderkar
Director
A3S Financial Solutions