What is ASBA in Initial Public Offer or IPO?

IPOs or Initial Public Offers that gained momentum among retail investors in last few years has been largely driven by the simplicity introduced in the procedure to subscribe to IPOs. e-IPO subscription is one such facility that was introduced in January last year.

And ASBA or Application Supported by Blocked Amount is another facility introduced long back in respect of IPOs which holds back the amount of the investor in his bank account till the time, final decision with regard to the allotment of shares to the concerned is taken after the basis of allotment exercise is completed. The procedure is no guarantee for the issuance or allotment of shares. In recent times, the facility has also been extended in lieu of mutual funds.

Generally speaking, it is nothing but an application that authorizes blocking of the money for the IPO subscription in the investor's bank amount until the allotment of shares is done in favour of the investor. So, before it the company cannot debit the said amount for IPO subscription. And, so a major advantage that accrues to an investor is that even though the application money for IPO remains blocked, the same continues to earn interest for him or her. Also, investor need not to hassle for the refund amount as the money is debited from the investor's account only for the amount for which the shares are debited.

And since the application money remains held back in the concerned investor's account, the same is also accounted by the bank in the computation of average quarterly balance (AQB) on the basis of which bank may levy a penalty amount if its below the prescribed amount for a given quarter. So, the ASBA is also advantages taking this criteria as well.

This mode is also useful for subscription to rights issue or Follow on Public Offers (FPOs). Infact, it is another process or way that co-exists with the system of issuance of cheque for subscription to the IPO.

Eligibility for application through ASBA in Public Issues

For public issues, all investor classes have been allowed by the Securities and Exchange Board of India to make the application through the channel that only blocks the application amount until the basis of allotment of shares under the issue is finalized. Infact, non-retail investor class is compulsorily required to invest in IPOs through the route.

Further, for making the application through the route, the investor class needs to produce the following details correctly that include bank account number, bid quantity for the IPO issue, client ID, DP Id and PAN.

How to avail the ASBA facility for IPO subscription?

In case you make an online application for the IPO issue, ensure to click on the ASBA option. In the other cae, when you are placing the request for IPO subscription through a offline route, an application cum ASBA facility form needs to be obtained from the bank allowing the facility and duly filled and submitted to them.

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