How to apply for IPO through ASBA

When Quess Corp IPO was oversubscribed by 147 times and gives you a return of 60 % on the debut day in the stock market, everybody got curious and wants to know the process to apply IPO. Before and after Quess Corp, there are so many good companies are entering into the capital market and giving a ghandsome return to investors. There are seventeen companies including Equitas Holdings, Mahanagar Gas Limited, Ujjivan Financial, Parag Milk Foods, RBL Bank etc. hit the capital market and collected near about Rs 10,000 Crore.

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Recently, I have applied ‘Mahanagar Gas Limited’ IPO and was allotted 35 Nos. of stocks at Rs 421. At the first day itself it has become Rs 530, roughly an increment of 25%. I have sold the stocks on Rs 526 which gave me a profit of approx. Rs 3500. You can also have the benefit of few quick bucks with the help of IPO. And you will love to hear that many IPOs will come in near future.

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To apply for an IPO you have to have a Demat account. Even if you don’t have the trading account, don’t worry. It is not required to apply for an IPO. But a trading account is required to sell the IPO. So I would suggest everybody have a Demat and Trading account for trading in the stock market.

If you don’t possess a Demat account and you want to apply for an IPO to have an excellent return, you can open the Demat account right now at Zerodha by clicking here.

Also Read: Why you should Choose a Discount Broker – A Beginners Guide

What is IPO and ASBA?

Initial Public offering or IPO is a process of raising money from the public by selling its stocks in a capital market. To know more, you can visit Wikipedia.

The companies are planning for IPO to raise capital from the public through the stock market. This money has been used generally for expanding the business. When one company grows, it needs capital. The capital can be arranged generally, either through debt by a bank loan or through selling equity of the company to venture capitalists. When a large amount is needed, most companies take the route of IPO. Venture capitalists may exit the company by taking the money collected from the IPO.

Application supported by blocked amount or ASBA is an application to block the amount to bid for IPO. To get an IPO you have to bid for the IPO. It has the range of price to bid and minimum quantity is fixed to bid for the IPO. The quantity or maximum investment amount is fixed by SEBI for different category of investors such as a retail investor, qualified institutional buyers, and Non-institutional investors. The individual investors fall in the category of retail investor and can bid up to the maximum investment of Rs 2 lakhs.

How to apply through ASBA?

There are a number of methods to bid for an IPO. A Demat account is mandatory to apply for an IPO. If you have a trading account, you can bid through that account. The trading account can be used in offline and online in both ways. The IPO can be applied by giving a cheque to the brokerage house or you can apply through online. In both the ways the money will be deducted from your account.

ASBA is an extended service given by the bank where you have held your savings account. First, you have to link your Demat account no or DP ID with your savings account. In my case, I have a savings account with Axis Bank and Demat account with Zerodha. I had to link the savings account with the Zerodha Demat account. If you have the Demat account with the savings account of the same bank, those are already linked with the same customer ID and you don’t have to do it again.

You have to put the quantity or bid lot and price to bid for an IPO. Now the question is at what price you will bid?

Suppose, the price set Mahanagar Gas Limited IPO was Rs 380-Rs 421, you bid at Rs 400 and the cut off is Rs 420. Then you will not be allotted any IPO. For a probably oversubscribed issue, the price normally is the cut off price where you have to bid to increase the chances of allotment. Since it is not known during bidding, the application is frizzed at maximum price. The difference between cut-off price and maximum price will be refunded to your account if you get at the cut-off price lower than the maximum price.

Upon applying or bidding for the IPO, the money will be blocked in your savings account. If you have allotted the shares, the money will be deducted. Otherwise, money will be unblocked and it can be shown in your savings account. The biggest advantage of ASBA is instant unblocking/refund if you have not been allotted the shares. Also, the amount is giving savings bank account interest in the blocked duration.

If you changed your mind and want to withdraw the application, you have to cancel the application before the closure date and time.

ASBA facility is given by the self-certified by syndicate banks (SCSB) approved by SEBI. You can see the full lists of SCSBs.

If you don’t have online access of savings account, you can bid for the IPO through ASBA with the offline mode also.

The procedure is as per the following

1. First, you have to go to the ASBA e-form.

2. Select the IPO.

3. Fill up the form

4. Download the ASBA form

5. Submit the designated bank branches of SCSBs along with cheque or cash

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Advantages of ASBA:

Though ASBA route is not become so popular among the investors, bidding for IPO through ASBA has immense advantages such as

  1. The application can be anywhere, anytime during the issue open
  2. There is no charge to apply for IPO
  3. Extremely easy and quick procedure
  4. Don’t miss the interest when the money is blocked for investment
  5. Easy to withdraw or change the bid during the issue

Also Read: Five Important Financial Ratios to Look Before Investing in Stocks

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