Skip to main content

Investing in IPOs through Asba is convenient saves time

However, you might face some initial hurdles if you have an account with a bank not designated to offer this
Did you face any hurdle while investing in a recent initial public offering ( IPO) stock issue? Did you have to go looking for a bank branch with the Application Supported by Blocked Amount (Asba) facility because your bank did not offer it? Or was your IPO application not processed due to signatures not matching? Or were you advised to invest through a brokerage that is the bank’s subsidiary instead of your regular brokerage? These are some of the initial hurdles a retail investor ( one who invests up to ? 2 lakh) might have faced while investing in IPOs through Asba. However, the process is set to get smoother, say experts.
Asba is an online payment facility provided by some banks, wherein the application money is blocked and gets debited only after IPO allotment is made. It was initially introduced by the Securities and Exchange Board of India ( Sebi) in 2008 and was mandatory for nonretail categories of investors. From January this year, Sebi has also made it mandatory for retail investors.
Asba vs earlier process of applying
Under Asba, investors give the IPO application forms either directly to Self Certified Syndicate Banks ( SCSBs), which then make a bid of the application and block funds. Or investors submit applications to registered brokers or other designated intermediaries which then bid the application and send the form to a SCSB for blocking of funds.
In the earlier process when Asba was not mandatory for retail investors, they could send a cheque/ demand draft with the application form to their brokers. The application was bid by the broker or intermediary member and the money deposited in escrow collection banks for clearance.
“The Asba mechanism, though prevalent for five to six years, has still not become popular with retail investors. In past issues, where retail investors had the option of subscribing through either the Asba or non- Asba mode, only 15- 20 per cent of retail applications came through Asba,’’ says Pranjal Srivastava, senior vice- president at ICICI Securities.
Pluses of Asba
Asba is convenient and reduces the time while applying for IPOs, says Hiren Dhakan, associate fund manager, Bonanza Portfolio. The money gets debited directly from your account. You don’t have to issue a cheque to your broker and wait for it to get cleared. The other advantage is that the investor’s money will continue to earn interest, as funds are in the account, till the time of debit, says Satish Menon, executive director, Geojit BNP Paribas Financial Services. The money is only blocked till you get allotment of shares.
You also don’t have to follow up with your broker for refund of money if you don’t get allotment of shares, as the money remains in your account, Dhakan says.
Likely hurdles
There are hassles, too, at least for now. “ The actual challenge is on the reach and proper submission of IPO forms, as this should be done only in adesignated SCSB,” says Menon. If the investor has a bank account with adesignated one, there is no problem.
The disadvantage is when the investor has a bank account with a non- SCSB bank or a bank without core banking facility. “ In the initial period, investors or their brokers might need to reach out to designated branches in their respective cities or nearby cities for applications, as every bank branch might not accept Asba forms,’’ says Srivastava.
Also, not all bank employees, even of SCSB branches, are aware of the Asba procedure. In such cases, bank staff might refuse to accept IPO forms. Or they might refuse to do the additional work of processing the forms, as it is not part of their routine work, says Dhakan.
Or, in some cities, the volume of applications might not be sufficient for banks to allocate dedicated resources or personnel for Asba, resulting in lack of experience in handling these forms.
In addition, entities accepting an IPO form from an investor should know all details such as the bank account details and send these to the same bank’s SCSB branch. For example, if a broker’s office collects IPO application forms from 20 investors and the accounts are in 15 different banks, these forms will have to be sent to the 15 designated SCSBs (assuming all are eligible).
“This will increase the logistical problems and chances of timeline lapses ( as IPOs are now open for only three days). Hence, the earlier method of submitting IPO forms at the broker’s office might not be efficient and many brokers might be reluctant to take the responsibility of small applications,’’ says Menon.
Investors also need to ensure the requisite funds are available in the account for blocking at the time of making the application, adds Srivastava.
Way ahead
Investors who face difficulty while applying through brokers might do so through their respective banks.
Menon of Geojit BNP Paribas says, “We have a specific set of clientele who used to apply for IPOs through the online method and we are getting queries from them. As of now, we are unable to process their forms due to change of methodology and are asking them to apply through their respective bankers.’’ But, these are only teething problems. “ Sebi has a list of the SCSB branches on its website. Most big public and private banks and even some small co- operative banks are SCSBs,’’ says Dhakan.
Business Standard, New Delhi, 15th Feb. 2016

Comments

Popular posts from this blog

New income tax slab and rates for new tax regime FY 2023-24 (AY 2024-25) announced in Budget 2023

  Basic exemption limit has been hiked to Rs.3 lakh from Rs 2.5 currently under the new income tax regime in Budget 2023. Further, the income tax slabs in the new tax regime has been changed. According to the announcement, 5 income tax slabs will be there in FY 2023-24, from 6 income tax slabs currently. A rebate under Section 87A has been enhanced under the new tax regime; from the current income level of Rs.5 lakh to Rs.7 lakh. Thus, individuals opting for the new income tax regime and having an income up to Rs.7 lakh will not pay any taxes   The income tax slabs under the new income tax regime will now be as follows: Rs 0 to Rs 3 lakh - 0% tax rate Rs 3 lakh to 6 lakh - 5% Rs 6 lakh to 9 lakh - 10% Rs 9 lakh to Rs 12 lakh - 15% Rs 12 lakh to Rs 15 lakh - 20% Above Rs 15 lakh - 30%   The revised Income tax slabs under new tax regime for FY 2023-24 (AY 2024-25)   Income tax slabs under new tax regime Income tax rates under new tax regime O to Rs 3 lakh 0 Rs 3 lakh to Rs 6 lakh 5% Rs 6

Jaitley plans to cut MSME tax rate to 25%

Income tax for companies with annual turnover up to ?50 crore has been reduced to 25% from 30% in order to make Micro, Small and Medium Enterprises (MSME) companies more viable and also to encourage firms to migrate to a company format. This move will benefit 96% or 6.67 lakh of the 6.94 lakh companies filing returns of lower taxation and make MSME sector more competitive as compared with large companies. However, bigger firms have shown their disappointment since the proposal for reducing tax rates was to make Indian firms competitive globally and it is the large firms that are competing globally. The Finance Minister foregone revenue estimate of Rs 7,200 crore per annum for this for this measure. Besides, the Finance Minister refrained from removing or reducing Minimum Alternate Tax (MAT), a popular demand from India Inc., but provided a higher period of 15 years for carry forward of future credit claims, instead of the existing 10-year period. “It is not practical to rem

Don't forget to verify your income tax return in August: Here's the process

  An ITR return needs to be verified within 120 days of filing of tax return. Now that you have filed your income tax return, remember to verify it because your return filing process is not complete unless you do so. The CBDT has reduced the time limit of ITR verification to 30 days (from 120 days) from the date of return submission. The new rule is applicable for the returns filed online on or after 1st August 2022. E-verification is the most convenient and instant method for verifying your ITR. However, if you prefer not to e-verify, you have the option to verify it by sending a physical copy of the ITR-V. Taxpayers who filed returns by July 31, 2023 but forget to verify their tax returns, will get the following email from the tax department, as per ClearTax. If your ITR is not verified within 30 days of e-filing, it will be considered invalid, and may be liable to pay a Late Fee. Aadhaar OTP | EVC through bank account | EVC through Demat account | Sending duly signed ITR-V through s