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Earn interest income while you invest in IPOs

Sensex has already crossed the 19K mark and is headed to touch historical highs. Encashing this market euphoria, a lot of companies are coming out with IPOs.

Coal India is coming out with the biggest IPO in the Indian history to raise approximately Rs12,000 crore. Many more companies will follow suit either to raise capital or to comply with SEBI condition of 25 per cent floating stock.

In view of flurry of IPOs expected in the immediate future, I thought of apprising readers about ASBA (Application Supported by Blocked Amount) which will make their participation in IPOs more profitable and enjoyable.

ASBA was introduced by SEBI in July 2008 but it is not yet known to many.

To read how you can earn interest income while you invest in IPOs, click NEXT.

The author is CFO, ApnaPaisa.com, a price comparison engine for loans, insurance and investments.

Apnapaisa is a price comparison engine that allows consumers in India the ability to compare the EMI, interest rates and other fees for home loans, car loans, personal loans, business loans, credit cards, compare online quotes and features of life insurance, health insurance, car insurance, travel insurance and other general insurance policies in India.

 

How does ASBA work?

Under the normal system while applying for an IPO you have to pay the full application money with the application itself.

With ASBA you can make an application for shares without actually parting with your money immediately.

As the name suggests (Application Supported by Blocked Amount), under ASBA every application for shares is supported by an amount, which is blocked in the account of the applicant itself.

The money is debited from your bank account only when basis of allotment is finalised and that too for the shares allotted to you and not for the shares applied for by you.

This helps you in eliminating the problems associated with delay in receipt of refund.

Moreover, now that banks have been mandated to give interest on the savings account on a daily balance, it helps those investors even more who are participating in the public issue of companies.

Moreover the money blocked in your account is taken into account for calculating the average quarterly balances (AQB).

Under ASBA you can make an application for any IPO/FPO/Rights issue and where the company does not offer more than one schedule of payment and the issue price is to be decided by bidding process.

With ASBA your banker blocks the money lying idle in your account to the extent of application money which is payable in respect of the shares being applied for by you.

Where can you make an application under ASBA?

You can make ASBA application through any bank which is registered with SEBI as banker to the issue and furnishes the required certificate to SEBI. Such banks which are authorised by SEBI to accept these applications are called self certified syndicate sanks ( SCSBs).

It is necessary that you need to have your bank account with the bank, which is recognised by SEBI for the purpose of accepting the ASBA applications.

You can make the application under ASBA either through physical application form or through Internet.

Some of the banks even allow you to make application through phone banking.

Here you need to ensure that you have sufficient balance in your bank account.

Money, which is blocked under ASBA, remains in your bank account till the time shares are allotted to you and is debited only if shares are allotted to you.

The money which is blocked under ASBA is unblocked fully or partly as and when the shares are allotted or the issue is withdrawn.

How to make an application under ASBA?

You need to fill a separate, special ASBA application form available with your bank for making physical application or  you can apply through net banking channel of your bank.

For making application through net banking or phone banking you need to register yourself for this purpose with your bank. Also you need to have a demat account, not necessarily with the same bank, through which you are making an application, and of course a valid PAN number. 

The ASBA process can not be used for making application for allotment of shares in physical mode.

In your ASBA application, in addition to the details of your demat account, you have to provide your banker with your DP ID and client ID as per your DP account. You also need to specify the quantity you wish to bid for.

Can you revise or withdraw your application?

Yes, you can revise the bid or withdraw the application before the bid closing date by making an application for withdrawal to your bankers where you have submitted your application.

However if you want to withdraw the application after the bid closing date, you can do so before the process of allotment is completed by submitting your withdrawal application to the Registrar to the issue.

Under ASBA, the bank uploads the data in respect of applications and revisions to the site of stock exchanges electronically and does not have to send physical copies of the application to either stock exchanges or registrar to the issue.

How does it score over erstwhile stock invest scheme?

SEBI and RBI had earlier introduced a scheme for the benefit of general public making share applications in IPO called stock invest, where the money used to be kept in a FD account with a bank and banks used to issue an instrument called stock invest, which was treated at par with cheques/draft.

Under this system full money of the stock invest instrument was encashed even in cases where full allotment was not made.

This resulted in blocking of entire money of the applicant in cases where part allotment was made. Moreover since the refund orders etc were posted through physical mails it used to take a very long time for the applicants to get their refund back.

Whereas with ASBA only amount in respect of shares allotted to you is debited from your bank account which was not the case with stock invest.  This scheme was discontinued in 2003.

So register yourself online with your bankers for availing the ASBA benefits for not only participating in an IPO but also earning interest on your savings bank amount. 

Wouldn't you like to avail the ASBA benefit?