Things you should know about Application Supported by Blocked Amount (ASBA)

With the Zomato IPO in the headlines, you might want to know how to subscribe an issue in the Initial Public Offering or IPO. If you’re so, we suggest you to understand what is an Application Supported by Blocked Amount (ASBA). It is a process developed by India’s Stock Market Regulator SEBI for applying to IPOs, Rights issue, FPS etc. In ASBA, an IPO applicant’s bank account doesn’t get debited until shares are allotted to them. Let us understand what it entails here and what a consumer needs to go though. 

Subas Tiwari

ASBA facility is adopted for application of Initial Public Issue IPO and Follow-on Public Offer (FPO). It is a SEBI based facility on your bank account which was launched in May 2010. It is a process by which retail investors block the relevant amount in their savings account till the shares are allotted, to apply for investment in an IPO or FPO. If shares are allotted to you then this amount is deducted from your bank account otherwise it is unblocked after the allotment process is completed. It can also be understood that if the investor has subscribed for the IPO, then under the process money will not be deducted from the investor’s account until he gets the IPO issue.

ASBA or Application Supported by Blocked Amount is an application containing an authorization to block the application money in the bank account, for subscribing to an issue.

If an investor is applying through ASBA, his application money shall be debited from the bank account only if his/her application is selected for allotment after the basis of allotment is finalised, or the issue is withdrawn/failed.  

Detailed procedure of applying in IPO through ASBA

Under ASBA facility, investors can apply in any public/rights issues by using their bank account. Investor submits the ASBA form (available at the designated branches of the banks acting as Self-Certified Syndicate Banks) after filling the details like name of the applicant, PAN number, de-mat account number, bid quantity, bid price and other relevant details, to their banking branch by giving an instruction to block the amount in their account. In turn, the bank will upload the details of the application in the bidding platform. Investors shall ensure that the details that are filled in the ASBA form are correct otherwise the form is liable to be rejected.

Who can apply through ASBA facility?

SEBI has been specifying the investors who can apply through ASBA. In public issues with effect from May 1, 2010, all the investors can apply through ASBA.  

In rights issues, all shareholders of the company as on record date are permitted to use ASBA for making applications provided he/she/it:

• is holding shares in dematerialised form and has applied for entitlements or additional shares in the issue in de-materialised form;
• has not renounced its entitlements in full or in part;
• is not a renounce;
• who is applying through blocking of funds in a bank account with the Self Certified Syndicate Bank (SCSB).  

Applying through ASBA vis‐à‐vis applying with a cheque

Applying through ASBA facility has the following advantages:

1. The investor need not pay the application money by cheque; rather the investor submits ASBA which accompanies an authorisation to block the bank account to the extent of the application money.
2. The investor does not have to bother about refunds, as in ASBA only that much money to the extent required for allotment of securities, is taken from the bank account only when his application is selected for allotment after the basis of allotment is finalised.
3. The investor continues to earn interest on the application money as the same remains in the bank account, which is not the case in other modes of payment.
4. The application form is simpler.
5. The investor deals with the known intermediary i.e. its own bank.

Is it mandatory for investors eligible for ASBA, to apply through ASBA only?

No, it is not mandatory. An investor, who is eligible for ASBA, has the option of making the application through ASBA or through the existing facility of applying with cheque.  

Can I make application through ASBA facility in all issues?

Yes, you can make application through ASBA facility in all the issues (i.e. public and rights. List of Self Certified Syndicate Banks (SCSBs) and their designed branches i.e. branches where ASBA application form can be submitted, is available on the websites of BSE (www.bseindia.com) and NSE (www.nseindia.com) and on the website of SEBI (www.sebi.gov.in). The list of SCSBs would also be printed in the ASBA application form. 

Self-certified Syndicate Bank (SCSB)

SCSB is a bank which is recognised as a bank capable of providing ASBA services to its customers. Names of such banks would appear in the list available on the website of SEBI. No, ASBA can be submitted to the SCSB with which the investor is holding the bank account.  Five (5) applications can be made from a bank account per issue.  

You can either fill up the physical ASBA form available with SCSB and submit the same to the SCSB or apply electronically/online through the internet banking facility (if provided by your SCSB).  

Can I use the existing application form for public issues?

Investor is requested to check the form carefully. In case of public issue, the application form for ASBA will be different from the existing application form for public issues. The application forms will be available with designated branches of

SCSB. In case of rights issue, there will not be a separate form for ASBA. The investor has to apply by selecting ASBA option in Part A of the Composite Application Form. 

How to withdraw my ASBA bids

During the bidding period you can approach the same bank to which you had submitted the ASBA and request for withdrawal through a duly signed letter citing your application number, TRS number, if any. After the bid closure period, you may send your withdrawal request to the Registrars before the finalisation of basis of allotment, who will cancel your bid and instruct SCSB to unblock the application money in the bank account after the finalisation of basis of allotment.  

What to do when application gets rejected

You have to approach the concerned SCSB for any complaints regarding your ASBA applications. SCSB is required to give reply within 15 days. In case, you are not satisfied, you may write to SEBI thereafter.

It is to keep in mind that in ASBA, the entire bank account does not get blocked. Only the amount to the extent of application money authorised in the ASBA will be blocked in the bank account. The balance money, if any, in the account can still be used for other purposes.

If the withdrawal is made during the bidding period, the SCSB deletes the bid and unblocks the application money in the bank account. If the withdrawal is made after the bid closure date, the SCSB will unblock the application money only after getting appropriate instruction from the registrar, which is after the finalisation of basis of allotment in the issue.     

And investors need not necessarily have their DP account with the SCSB, where they are submitting the ASBA form. One is required to submit ASBA to the SCSBs only.  

An investor can apply either through ASBA or through existing system of payment through cheque. If an applicant applies through both, ASBA as well as non‐ASBA then both the applications having the same PAN, will be treated as multiple application and hence will be rejected.

The bids received through ASBA mode gets reflected in the demand graphs displayed in the website of stock exchanges. In case there is an error by SCSB in entering the data in the electronic bidding system of the stock exchanges, the SCSB shall be responsible.

The SCSB shall give a counterfoil as an acknowledgement at the time of submission of ASBA and also the order number, generated at the time of uploading the application details, if sought by the investors in case of need.

ASBA forms need to be treated similar to the non‐ASBA forms while finalising the basis of allotment. In case the issue fails/withdrawn the SCSB shall unblock the application money from the bank accounts upon receiving instructions from the registrar.

In case of any complaints, the investor shall approach the bank, where the application form was submitted or the registrars to the issue.

This can be done provided that your bank have core banking facility and the ASBA form is submitted at a branch which is identified as designated branch by the bank.

The chance of getting allotment is same for all the applicants whether application is made through ASBA or non‐ASBA. ASBA is a simple, easy and smart way of applying in public issues. There are many advantages of applying through ASBA like money does not go out of investors’ account, no hassle of refund, investor keep earning interest on the blocked amount as banks have started paying interest on daily basis w.e.f April 1, 2010 and it gives better opportunity for utilisation of money.

ASBA forms can be submitted only at the SCSBs. In case investor does not have an account with any of the SCSBs, then he cannot make use of the ASBA.

                                                                         (Source: SEBI)

Equity Linked Saving Scheme (ELSS Mutual Fund)

How good it would be if with the accumulation of money, there is a bumper exemption on tax as well. Tax exemption also means a kind of savings. This savings money can be put to good use elsewhere. There is a scheme named Equity Linked Saving Scheme or ELSS, with the help of which one can save up to Rs. 46,800. Let’s check it out here.

Subas Tewari

Compared to Fixed Deposit or NPS, ELSS offers many tax saving facilities along with giving higher returns. Mutual funds earn more than FDs or NPS. Therefore, people who invest in ELSS funds or equities consider ELSS to be more effective. ELSS is such a fund which gives maximum returns with minimum lock-in period. ELSS is actually a combination of large and medium size stocks. This fund has been designed in such a way that it is easy for the person taking it to save tax. If you hold this fund for a longer period, there are many possibilities of growth and higher returns. There are many features of this fund. For example, you can start it by investing at least Rs 500. Investment facility is also available in this through SIP. The minimum lock-in period of 3 years is available in this fund. That is, after 3 years, you can easily leave this fund and withdraw your money. The biggest feature is that with the help of this fund, a taxpayer can save up to Rs 46,800.

Fund’s salient features

There is a limit on the minimum deposit amount in this fund to save tax. In this fund, you get a minimum deposit of Rs 500 and a maximum of Rs 1,50,000. How much you will earn from this fund depends on your deposit amount and market conditions. If we look at the track record of the last one year, then the situation is satisfactory because mutual funds along with shares etc. have also given good returns.

Multiple benefits with single investment

Actually, ELSS fund is a type of tax saving fund in which most of the funds are deposited in equity schemes. Equity funds are such schemes in which money is invested in the shares of companies. Companies are decided under equity according to the capital in the market and are invested in them. If a person deposits Rs 1.5 lakh in ELSS every year, then one can save tax of Rs 46,800 under section 80C of Income Tax. Also, it is allowed to invest more than Rs 1.5 lakh.

Why invest in ELSS?

ELSS is considered to be much better than those who follow the traditional methods of tax saving. Compared to Fixed Deposit or NPS, ELSS offers many tax saving facilities along with giving higher returns. Mutual funds earn more than FDs or NPS. Therefore, people who invest in ELSS funds or equities consider ELSS to be more effective. The biggest thing is that the lock-in period of ELSS is very less as compared to FD or NPS. That is, the possibility of high returns in a short time can be found in ELSS.

Who can invest?

ELSS can be invested by any person who wants to reduce his income tax under section 80C by investing money in tax saving scheme. It is an equity investment, so those who invest money for a long term and expect returns, who are less concerned about market risk, can make the most of this fund. Since ELSS has a lock-in period of 3 years, the fund is taxed on the basis of long-term gains. If earning more than Rs 1 lakh then interest of 10 per cent will have to be paid.

More work with less investment

There is no need to deposit a lot of money in this fund at once. That is, you do not need to take the tension that you will deposit a lot of money, only then you will be able to take advantage of this tax saving scheme. You can enter this scheme with very little money. By taking out the average of this fund every year, you can start investing with the same money. There is no need to make huge payments for each unit of the fund. If you want, you can start investing from 500 rupees. This also gives you discipline in investing.

What are ELSS funds?

ELSS is a mutual fund scheme and is quite similar to diversified equity fund of Mutual Fund. As the name suggests, the scheme primarily invests in equity market by buying equity stocks of companies listed on the stock exchanges. The units of the scheme are offered at the NAV (Net Asset Value). The NAV is announced for all business days and keeps changing primarily depending upon the movement in the prices of stocks held in the portfolio of the scheme in relation to market fluctuations. Mutual Fund ELSS is a good tax-saving instrument but still is not invested in large numbers by tax-savers. So, this article is just to wake them up and take notice of this tax-saving investing option so that there is maximum participation of the public from all walks of life.

What is the urgency to invest in ELSS?

It is most likely that the Direct Tax Code (DTC) proposed by the Government will come into effect (sooner than later), and your most dependable tax saving section – Section 80C of the Income Tax Act would undergo amendments. While the DTC includes a proposal to increase the eligible deduction under Section 80 C, Equity Linked Savings Schemes (ELSS) -also known as “tax saving mutual funds”, would no longer continue to be a part of eligible tax saving instruments, thus leaving you with fewer market-linked investment options to accelerate the process of wealth creation.

Who are advised to invest in ELSS?

YES. This is an important aspect of tax-planning especially when you look at ELSS as a tax-saving option. The following are the factors that could be considered. 

Those who have clear and focused financial goals

If you have financial goals set in your life, the same too should influence the way you do your tax planning and invest in tax saving instruments. So, say for example your goal is retiring from work 5 years from now, then your tax saving investment portfolio should be less tilted towards market-linked tax saving instruments, as you are quite near to your goal and your regular income will cease. Likewise, if you are many years away from the financial goal, you should ideally allocate maximum to market-linked tax saving instruments and less towards those instruments (tax saving) which provide you assured returns.

Those who have risk appetite

It refers to your ability to take risk while investing, and it is totally dependent on your age, income, expenses, and nearness to your goal. So, if your willingness to take risk is high (aggressive), you can tilt your tax saving investment portfolio more towards the market-linked instruments such as ELSS. But if you have a moderate-risk profile, then you can take a mix of 60:40 into market-linked tax saving instruments and assured return tax saving instruments respectively.

Thus, now if you are young, income is higher, and therefore willingness to take risk is highest along with your financial goals being far away; you may look at ELSS mutual funds to avail a tax benefit under Section 80C. Please note that ELSS mutual funds are 100 per cent diversified equity funds and a distinguishing feature about them is the compulsory lock-in period of 3 years brings in financial discipline towards holding one’s investments for the long-term. For investment in ELSS, there is a minimum investment amount of Rs. 500 which is unlike the other equity-oriented funds (which generally demand Rs. 5,000 as the minimum investment amount).

What should be the income bracket to enter investing?

It is said that if your income is high, your willingness to take risk is generally high. This can work in your favour, as you can allot your portfolio more towards equity-related instruments such as ELSS, and make your portfolio appear more aggressive. Similarly, if your income is not high enough, you can invest in other tax-saving instruments which provide you assured returns.

What age to enter investing?

Your age should determine your asset allocation. If you are young, you can take more risk and vice-versa. Hence, for prudent tax planning too, if you are young, you should allocate more towards market-linked tax saving instruments such as ELSS. Moreover, you would also enjoy the advantage of greater investment tenure which would enable you make more aggressive investments and create wealth over the long-term to meet your financial goals.

How to select ELSS funds?

Ideally while evaluating ELSS mutual funds, one should assess their performance over a 3-Yr time frame, as this would enable you to judge whether they have created wealth for your post- lock-in period.

Moreover, the Fund has to ensure to its investors to fairly low-risk, but should provide risk-adjusted returns thereby making it a low risk-high return investment proposition in the category.

Also, the returns should have been achieved by the Fund without indulging in much portfolio churning.

What are the benefits of ELSS MF?

Tax benefit on the investment

You can get full tax benefit of investment under section 80 C of Income Tax Act. Maximum taxable limit is Rs. 1, 50, 000 for the current Assessment Year.

Shortest lock-in period (period during which payment will not be made if you go in for tax benefit)

Lock-in period of ELSS is 3 years which is shortest in comparison to any other tax saving investment. This lock-in period is the only difference between diversified equity mutual funds and ELSS. When compared to bank tax-saving FDs, ELSS scores over them as bank FDs have a lock-in period of 5 years.

Tax-free returns

Any profit/ capital gain you have from ELSS is completely tax free. If you compare the returns from NSC and Tax-Shield Bank FDs, these are completely taxable and paid interest is added to your income for tax computation. So, you end up paying tax on interest received. Only PPF Offers tax- free returns but it has a maturity period of 15 years.

Tax free dividends

ELSS schemes give dividends on regular intervals and the dividend you receive is tax free.

No entry loads

Say if you invest Rs. 15, 000 in ELSS Scheme, your Rs. 15, 000 is invested in ELSS Mutual Fund. You have to decide how much do you want to pay your financial advisor. Take a word of caution: some insurance agents sell ULIPS as Mutual Fund + Insurance with lots of ‘load’ expenses.

High growth

Equity funds can be volatile in the short run, but have been known to beat inflation and create wealth over the long run. If you are looking at investing some money that you won’t need in future, and are willing to stand atop the ups and downs of the market, you may find ELSS an ideal tax saving option.

Systematic Investment Plan (SIP) in ELSS

In SIP, you invest a certain amount each month in a fund. It’s an effective way of investing in ELSS as the concept of rupee cost-averaging and the power of compounding works well. Even if you have done your tax planning for this year, start from 1st AUGUST, 2015.

Comparison with Unit-Linked Insurance Plan

The investors and tax-saving public sometimes think of ELSS funds and ULIPs as alternatives. This is a mistake as functionally, there is nothing common between ELSS funds and ULIPs. It’s a basic rule of saving not to mix insurance with investments. ELSS and ULIPs are two different products that serve different purposes.

Where do ELSS stand as a preferred fund for investment?

ELSS is one of the popular tax saving option for savvy investors, as not only that ELSS is a diversified equity mutual fund which has a majority of the corpus invested in equities, but also that it has a lock-in period of 3 years from the date of investment. The returns from investment in ELSS are based on schemes from equity markets. Returns from ELSS schemes are also tax-free.

Based on previous years’ returns, some of these funds have grown 3 times in 5 years. There is also no limit on investment in ELSS funds, but you can claim tax deduction of up to Rs.1,50,000 under Section 80C of the Income Tax Act.

ELSS is always better to invest-

• Via SIP mode rather than lump-sum (for cost-averaging)
• In GROWTH options (for wealth accumulation)
• In DIRECT Plan (to save costs & higher returns)
• Compare ELSS with other investment options and see the difference.

BEYOND TAX SAVING