Saturday, December 4, 2010

ASBA

When a retail investor invested in an IPO ( Initial Public Offer ) or an FPO ( Follow Up Public Offer ) , the Investor had to pay the entire application amount upfront and it would take upward of 15 days to get through this process, before stocks are finally listed .

This means that your application money would we LOCKED up during this period and in case there has been over subscription to a issue , you will not be allotted your entire applied quantity of shares and then you would have to wait for your refund

So in order to avoid all these confusions ASBA or Application Supported by Blocked Amount was introduced .

This is how it work , when you apply instead of actually transferring the entire amount to a escrow account, the amount would continue to be in your account , but this amount would be LOCKED , hence you cannot withdraw this amount .

So after all the allocation process have been completed , the requisite locked amount will be debited from your account .

So what does this mean to the investor
a) The Investor's money would continue to earn interest for him ,untill it is finally debited
b) In cases of over subscribed issues, only amount for the allocated shares would be debited , so there is no question of refund and hence all delays and disputes associated with refund is removed.
Image : FreeDigitalPhotos.net,Photographer: Suat Eman

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