Definition
ASBA stands for Applications Supported by Blocked Amount. It is a term related to banking in India, most commonly used during the subscription for Initial Public Offerings (IPO). Under ASBA, the investor’s bank account remains blocked for the IPO application money until the shares are allotted.
Key Takeaways
- ASBA stands for ‘Applications Supported by Blocked Amount.’ It’s a process developed by India’s Securities and Exchange Board for applying to an Initial Public Offering (IPO), Follow on Public Offering (FPO), or Right Issue.
- Under ASBA, the application money remains blocked in the applicant’s account until the issuer completes the allotment process. This ensures the applicant’s funds earn interest until they are actually utilized, providing a significant advantage to the investor.
- The biggest benefit of using ASBA is that it eliminates the risk associated with refunds on non-allotment of shares. Since no money is debited from the investor’s account until the shares are allotted, any issues with refunds are avoided.
Importance
ASBA, which stands for “Applications Supported by Blocked Amount,” is a significant term in finance, particularly in IPO investments.
It refers to an application mechanism provided by banks for IPOs, Right Issues, etc., where the application money remains in the investor’s account until the final allotment of securities.
This mechanism ensures that an investor’s funds leave their account only when their application is selected for allotment, reducing the opportunity cost associated with funds leaving the account at the time of application.
It’s important because it ensures transparency, accentuates efficiency, and boosts investor confidence by protecting them from any misuse of their funds.
Explanation
The full form of ASBA is Applications Supported by Blocked Amount. It is a process developed by the Security and Exchange Board of India (SEBI) for applying to an IPO (Initial Public Offering). The purpose of this process is to ensure that investors’ funds leave their account only after their application in the IPO is accepted and they are allocated shares.
In the context of its use, when an investor applies for shares in an IPO through ASBA, the application amount gets blocked in the bank of investor’s account. This means that the amount is still in their account, but it cannot be used for any other purpose.
After the allotment process, only the amount required for the shares allotted to him would be debited from his account, and the remaining balance, if any, would be released. Hence, ASBA helps in earning interest on application money until finalization of the IPO allotment process.
Examples of Full Form of ASBA
The ‘Full Form of ASBA’ is Applications Supported by Blocked Amount. This is a commonly used process for bidding in the Indian financial market. Here are three real-world examples:
Initial Public Offering (IPO) Subscription: When a company decides to go public and lists its shares on the stock exchange, prospective investors can use the ASBA process to bid for the shares. They indicate the number of shares they wish to purchase and the amount is blocked in their bank account until the allotment process is completed. If they win the bid, the blocked amount is debited and shares will be credited to their account. If not, the blocked amount is released.
Rights Issue: Existing shareholders of a public company who are entitled to subscribe to more shares can also use the ASBA process. The amount equivalent to the number of shares they want to purchase is blocked in their bank account. If they subscribe to the rights issue, the blocked amount is debited and they receive the new shares. If they don’t subscribe, the blocked amount in their account is released.
Further Public Offering (FPO): Like IPOs, companies can decide to offer more shares to the public to raise additional capital. This process is known as Further Public Offering. Here too, prospective investors can use the ASBA process for bidding for the additional shares. The mechanics work similarly to the IPO example above.
Frequently Asked Questions about ASBA
What is the full form of ASBA?
The full form of ASBA is “Application Supported by Blocked Amount”.
What is ASBA?
ASBA is a payment method used in IPO applications where the applicant’s bank account doesn’t get debited until a certain number of shares are allotted to them.
How does ASBA work?
When an investor applies for an IPO using ASBA, the application amount does not get debited directly. Instead, it’s blocked by the bank. The amount is only debited from the account when the shares are allotted to the investor.
Who can use ASBA?
Any investor who has a bank account can use ASBA for applying to an IPO. Also, it’s compulsory for non-retail investors to apply through ASBA.
What are the benefits of ASBA?
ASBA assures that an investor’s funds are not debited until the shares are allotted, preventing lengthy waiting periods for refunds. It also enables an investor to continue to earn interest on the application money until it gets debited from the account.
Related Entrepreneurship Terms
Sure, here is the HTML bulleted list you requested:
- Application Supported by Blocked Amount (ASBA)
- Initial Public Offering (IPO)
- Securities and Exchange Board of India (SEBI)
- Designated Branches (DBs)
- Self Certified Syndicate Banks (SCSBs)
Sources for More Information
Sure, here are the four reliable sources for more information about the full form of ASBA (Application Supported by Blocked Amount):
- Securities and Exchange Board of India (SEBI) – The regulatory authority for the securities market in India provides detailed information about ASBA.
- Reserve Bank of India (RBI) – The central bank of India provides information about different financial terms including ASBA.
- Investopedia – A comprehensive resource for investing and personal finance education. They provide explanations for various terms including ASBA.
- The Economic Times – An English-language, Indian daily newspaper known for financial news. They provide articles and news about ASBA.
