The full form of ASBA is Application Supported by Blocked Amount. The Securities and Exchange Board of India (SEBI) developed this system to improve the application process for IPOs and rights issues. ASBA is a method that allows investors to apply for shares in an IPO or rights offering without having to send money upfront.
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How Does ASBA Work?
When investors apply for shares through ASBA, the system blocks the required cash in the investor’s bank account for the applied shares. However, the mechanism does not immediately deduct the money from the investor’s account. Rather, they remain blocked until the allotment procedure is complete. The system unblocks the remaining funds when the shares have been distributed, and it debits the matching amount. With this innovative method, investors can receive interest on the blocked amount while avoiding long-term ties to their money.
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Benefits of ASBA
1. No Opportunity Loss: ASBA enables investors to earn interest on the money blocked until the allotment is complete, ensuring that their funds aren’t sitting around unutilized.
2. Simplified Application Process: ASBA makes the application process easier and more comfortable by doing away with the requirement for investors to send checks or transfer money to an additional escrow account.
The risk of transferring money to an unknown account is lessened because the money remains in the investor’s bank account until the shares are distributed.
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Steps to Apply Through ASBA
1. When submitting an application for an IPO or rights offering, select ASBA as the preferred alternative.
2. Provide the essential information, such as your bank account information and the winning bid.
3. Your bank account has been blocked with the bid amount.
4. The leftover funds are unblocked after allotment, and the equivalent amount is deducted.
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ASBA, or Application Supported by Blocked Amount, has completely transformed the application process for rights issues and IPOs in India. This investor-friendly method simplifies the application procedure and ensures that investors can maximize their funds even while applying. A testament to ongoing efforts to improve the financial landscape, ASBA does away with the requirement for upfront payment transfers and offers a safe and effective way for applicants to submit applications.
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