What is ASBA: Benefits, types, process & form

Applying for hot new IPO share listings can be tedious – struggling with paperwork, making upfront payments without clarity on the allotment, and chasing refunds. But there is a better way now! The ASBA helps investors conveniently subscribe to public issues without all that hassle. This application method has made the process smoother for retail and institutional investors. Read on to learn everything about how ASBA makes IPO investing easy. In the section below, we’ll discuss everything about ASBA and its process.

An overview of ASBA

ASBA full form is Application Supported by Blocked Amount. It lets you apply for IPO shares without having to pay upfront immediately. It is denoted as an Application Supported by a Blocked Amount, so the money stays blocked until you get the shares. This way, you save effort on cheques or transfers and can plan your money flow better.

Introduced by SEBI, ASBA makes applying for new share listings much quicker and easier for all investors – whether you are an individual buying a few shares or an institution investing crores. Overall, it removes the hassles and makes IPO share applications smooth and convenient.

Also read: What is strike price?

Why was ASBA Introduced?

SEBI came up with Application Supported by Blocked Amount ( ASBA) in 2008 with an aim to enhance the IPO application process. It was designed to eliminate inefficiencies like upfront payments and delays in refunds, ensuring greater investor safety and transparency.

By allowing funds to remain in an investor’s account until the share allotment, ASBA protects against misuse and earns interest on the blocked amount. This reform also aimed to reduce paperwork and operational risks while speeding up the application and refund process, ultimately increasing the IPO participation of retail and institutional investors.

How does ASBA work?

The ASBA process is quite simple.

Step 1: You must have an ASBA-enabled bank account. This is usually your savings or current account with any leading bank. Check in advance if your account allows ASBA payments.

Step 2: Carefully put all the details in the IPO application form. Remember to write your ASBA account number, bank name, branch, etc. This is the account from where the money will get blocked.

Step 3: Instead of preparing a cheque and attaching it, simply authorise your bank to block the required application amount in your ASBA account. Just tick the right box and sign it. It is very easy! No cheque is required at all.

Step 4: Submit the a to the branch where you have your ASBA account.

Step 5: The bank will block the funds you authorised for that IPO application.

Step 6: The money remains blocked in your account until shares are allotted. The amount is returned to your account if you don’t get any shares.

Step 7: If you are allotted shares, the required amount is debited from your account and transferred towards share allotment.

Also read: Difference between equity and debt IPO

Benefits of ASBA

Mentioned below are some of the significant benefits of ASBA:

Your Money Stays in Your Bank

When you apply for an IPO through ASBA, your money isn’t immediately removed from your account. It just gets ‘blocked’. So, it’s still in your account, earning interest, until you get those shares.

No More Overdraft Headaches

With ASBA, there’s no risk of accidentally spending the money you set aside for IPOs. It’s like putting a hold on that amount in your account – visible but untouchable, preventing any overdraft issues.

Simple Process

The process with ASBA is much smoother and has fewer chances of errors. You don’t need to worry whether your physical cheque or forms will arrive on time.

With ASBA, you get regular updates directly from the bank via email or SMS at every step. So you always know what is happening with your application. It’s like your bank guides you through the entire process step-by-step via notifications.

Faster Access to Your Money

If you don’t get the shares, your blocked money is made available again pretty quickly. It’s much faster than the old way of staying in anticipation for a refund cheque in the mail.

Secure

ASBA is a secure way to apply for IPOs. Your application goes directly to the stock exchange via secure banking channels, so there’s less chance of any mix-ups or security issues.

Continued savings account interest

Your account keeps earning the normal savings interest on the blocked amount until the money is debited. So your money keeps growing.

Also read: What sets an SME IPO apart from a regular IPO?

Step-by-step ASBA application process

Here are some steps you need to follow in the ASBA process

Step 1: Check if you can invest in the IPO you want to apply for. Also, ensure you have a Demat account.

Step 2: Carefully read the offer document and research the company’s financials and future prospects.

Step 3: Identify the right ASBA bank, which could be your existing bank where you hold savings/current accounts.

Step 4: Collect the physical ASBA form from the branch or complete it online via net banking.

Step 5: Accurately fill in all the required details in the form, including the account number which must be blocked.

Step 6: Submit the form to the branch and authorise them to block the application amount from your linked ASBA account.

Step 7: After scrutinising and validating your application details, the bank will block the amount.

Step 8: The application reaches the stock exchanges through your bank for processing.

Step 9: After the share allotment, funds are unblocked or debited as applicable.

Step 10: Allotted shares are credited to your demat account.

Different Types of ASBA Applications Explained

When it comes to submitting the ASBA application form, you have 2 options:

Physical ASBA – As the name suggests, you must physically fill out and submit the form at your bank branch. Old school style!
Online ASBA: You can fill and submit the form electronically via net banking. Even the amount gets blocked online through internet banking. No need to go to the branch.

You can also use the UPI handle linked to your bank account to block funds.

So go for online ASBA if you want to skip the documentation and visit the bank. Do it digitally and get it done in minutes!

Who can apply via ASBA?

Anyone can apply for an IPO through the ASBA process. Here are the various investor categories eligible for it:

Retail investors like you and me applying for shares worth up to ₹2 lakhs
High net worth individuals or HNIs who apply for above ₹2 lakhs worth of shares
Institutional investors such as mutual funds, banks, financial institutions, etc.
Companies’ shareholders who apply through reservation quota

So whether you are a small retail investor or a big HNI, you can apply ASBA to IPOs of unlisted companies in India. It makes the process easier across investor classes.

Common ASBA mistakes

Here are some common mistakes to avoid with ASBA:

Wrong details in form – Ensure all your details, PAN, and account number match perfectly with supporting documents.
Going to the wrong bank branch – Submit the ASBA form only at the branch where you hold the account to be blocked.
Blocking less than the application amount – Ensure the same amounts are filled in the form and requested to be blocked.
Using a non-ASBA account – This is a silly mistake, but check if your account is enabled for ASBA before applying.
Multiple applications from the same account – As the amount gets blocked only once, apply multiple times.
Insufficient funds – Ensure you have adequate funds in the account when blocking the request.

Conclusion

ASBA has made applying for IPOs a smooth, convenient and transparent process for retail investors. Eliminating upfront payments and physical paperwork significantly reduces the hassles involved. The ability to block funds rather than pay immediately provides safety and flexibility to investors. Real-time application status tracking also enables complete visibility of the process. With its multiple benefits around ease of use, safety and speed, ASBA has emerged as the preferred route for investors to subscribe to initial public offerings.

FAQs

Who is eligible to apply through ASBA?

Investors who are eligible to apply through ASBA include retail investors (up to ₹2 lakhs), HNIs (above ₹2 lakhs), institutional investors, and eligible shareholders applying through reservation quotas.

How does ASBA benefit investors?

ASBA ensures funds remain in the investor’s account, earning interest until allotment. It removes risks of overdrafts, speeds up refunds, simplifies the process, and offers transparency with real-time application updates.

What are the steps involved in applying through ASBA?

To begin with, you need to check eligibility for the IPO and ensure you have a Demat account. Then, obtain and fill out the ASBA form (physical or online). Submit the form to your bank and authorise the fund block. Your application will then be forwarded securely to the stock exchange. Lastly, funds will be debited or unblocked after the allotment decision.