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New system of IPO investment

business Updated: Aug 13, 2008 20:55 IST
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The details of the new system for investment in public issues, called the Application Supported by Blocked Amounts (ASBA), have been announced. This will be conducted through banks, which have completed the necessary procedure and will be known as Self Certified Syndicate Banks (SCSB). It is important for an individual to understand this process to know the steps involved in making an investment.

Additional system
The first thing is that this will be an added system that will be present along with the investment mode using cheques. This will thus become an extra mode of investment and hence everyone will not be forced to use the system. In fact several investors will not qualify to use the system at all. The existing process of cheque payments can be continued by investors for the time being.

Required fund amount
The investor is required to submit an application to the bank if he wishes to use the system for investing in a particular issue. When this application is received and accepted, the bank will block the required amount of fund in the investor’s bank account. This requires an individual to have the required amount in his bank account when he is submitting the application. Otherwise the application will not go through. The fund is not withdrawn from the account, but is locked for the purpose of investment.

Transfer of data
Once the time period for the issue is over, the bank will upload the application data and transfer the information to the registrars to the issue. The registrars will then have the details of all the investments that have come into the scheme and they can then complete the allotment process. The funds will remain in place till the final date of allotment when the required number of shares will be allotted to the investor depending upon the subscription amount received in the issue.

Fund transfer
Once the allotment details are finalised, the registrar will give the necessary details to the bank about the number of shares allotted and the amount involved in the process. When this information is received, the bank will transfer the required amount to the account of the issuer. The remaining amount, if any, can be used by the account holder.

Process requirements
This will complete the process and all that the investor has to do is make the application to the bank which will also contain various details like the Permanent Account Number, the details of the depository account and the number of shares applied for at the cut off price. This will help in the smooth completion of the investment process.