ASBA or Application Supported by Blocked Amount actually pertains to those applying for shares in an Initial Public Offering or IPO.
How ASBA Works?
Let's say you subscribe to 5000 shares and the shares have not been allotted. Now, until the allotment happens nobody has any idea on how much money an individual would have to pay. By blocking the money one is ensuring that on allotment there is an amount that would be paid towards the IPO.
The application money will be debited from the investors bank account only when the allotment of shares happen.
How and where to apply for an ASBA?
According to guidelines of the Securities and Exchange Board of India (SEBI) any investor can apply through this way. Investors need to fill in a form under the ASBA and handover the same to the branches of the banks that have been assigned as SCSB.
The Bank will then proceed to upload the form in the bidding platform.
What are the advantages?
1) The biggest advantage of this facility is that you do not have to wait for refund. If you apply for 100 shares and only 100 shares are allotted, you would have to be refunded the excess amount paid. Now, under ASBA your account would be debited only after allotment and hence you can pay the exact amount.
2) The ASBA also completely eliminates the need for issuing a cheque since you have to just handover the form.
3) Since your account is not debited you continue to earn interest even on the blocked amount.
It's not compulsory for every individual to go through the ASBA route. You can still use the traditional route of the cheque book. But, that means going through a lot of disadvantages as mentioned above.
As many as five applications can be made from a bank account for a single public issue. It's important to note that you can also withdraw the ASBA bids.