What is ASBA and Its Benefit
The full form of “ASBA” is Application Supported by Blocked Amount. This is a procedure established by the Securities and Exchange Board of India (SEBI). Essentially, when you want the answer to the question, “What is ASBA?”, you will get a response that ASBA is an application process that comes into action when you wish to subscribe to any IPO (initial public offering).
What is ASBA?
When you apply for any upcoming IPO, essentially, you subscribe to it. This means that you select the number of shares you wish to obtain in a new company that is about to be publicly listed. There are certain processes involved in any application to an IPO. For instance, when you apply for a certain amount of shares you wish to get allotted to you, you have to pay for these. The money is held, and blocked in the bank account, till the shares are allotted. In case they are not, the money is returned to the subscriber. ASBA is the authorisation that is generated (via an application) to block the money for the application to the issue of the IPO.
This blocked amount cannot be used. Nonetheless, it is possible to earn any applicable interest on the amount which is blocked.
When You Apply for an IPO
When you open a Demat account, you do not have to block any amount that would be used to buy stock. You can simply transact on stock exchanges and when you purchase stock, this gets stored electronically in a Demat account. With any IPO subscription, the process is different. If you apply to an IPO, depending on the amount of shares that you want allotted, through ASBA, your amount is debited from your linked bank account only in the event you get your quota of allotted shares. To apply for an IPO through the ASBA process, you have to have a Demat account. Furthermore, to answer a frequently asked question of “What is an ASBA account?”, it is simply the account in which your money is blocked for paying for potential share allotment. This is, essentially, your own bank account, but the specific amount for your requested shares is blocked (so it cannot be used till share allotment is granted).
Benefits of ASBA
If you apply to an IPO through the ASBA process, you get some distinctive benefits. Once you have got an answer to explain “What is ASBA?”, you will no doubt understand its benefits too:
- The money which is blocked for future share purchase through ASBA can still earn interest for the investor.
- ASBA gets rid of the requirement to pay for shares (once allotted), via demand drafts and cheques.
- The facility of ASBA is free of cost and convenient.
- It is easy to apply for the ASBA facility online through netbanking.
- No physical paperwork is involved.
- In case shares applied for are not allotted, the blocked amount becomes automatically “unblocked” and the investor may use it for any purpose once more.
IPO Application Made Easy
If you wish to apply for any upcoming IPO, you must open a demat account. Moreover, the Securities and Exchange Board of India (SEBI) has made it mandatory to apply through ASBA from 2016. With easy and convenient processes to invest, you may be compelled to go in for a good IPO subscription soon.
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