All you need to know about ASBA - Application Supported by Blocked Amount

• ASBA means “Application Supported by Blocked amount”. ASBA 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only if his/her application is selected for allotment after the basis of allotment is finalized, or the issue is withdrawn/failed. In case of rights issue his application money shall be debited from the bank account after the receipt of instruction from the registrars.
  
  
• It is a supplementary process of applying in initial public offers (IPO), right issues and follow on public offers (FPO) made through book building route and co‐exists with the current process of retail investors using cheque as a mode of payment and submitting applications.
  
  
• An individual investor can apply through ASBA process in a public issue through book building route provided he / she:
  1. is a “Resident Retail Individual Investor” i.e. applying for shares/ securities up to Rs 1,00,000/‐
  2. is bidding at cut‐off, with single option as to the number of shares bid for;
  3. is applying through blocking of funds in a bank account with the SCSB;
  4. has agreed not to revise his/her bid;
  5. is not bidding under any of the reserved categories.
  
  
• Applying through ASBA process has the following advantages:
  1. The investor need not pay the application money by cheque rather the investor submits ASBA which accompanies an authorization 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 which is 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 finalized.
  3. The investor continues to earn interest on the application money as the same remains in the bank account.
  
  
• ASBA is applicable to only book‐built public issues which provide for a uniform payment option to the retail individual investors. On pilot basis, SEBI has enabled ASBA in few selected rights issues.
  
  
• Applications can be made either online or via physical forms. Some of the brokerages as Kotak, ICICI Direct, etc have provided option to apply through ASBA via their online trading platforms. For investors applying through physical form, they need to use a separate form which will have “BID CUM ASBA FORM” printed on the top right corner.
  
  
• ASBA applications has to be submitted with designed branches of Self Certified Syndicate Banks (SCSBs). SCSB is a bank which is recognized as a bank capable of providing ASBA services to investors. Names of such banks would appear in the list available in website of SEBI.
  http://www.sebi.gov.in/Index.jsp?contentDisp=SCSB
  
  
• ASBA bids can be withdrawn. 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. After the bid closure period, you may send your withdrawal request to the Registrars, who will cancel your bid and instruct SCSB to unblock the application money in the bank account after the finalization of basis of allotment.
  
  

ASBA process in brief:

1. An ASBA investor shall submit an ASBA physically or electronically through the internet banking facility, to the SCSB with whom the bank account to be blocked, is maintained.
   
   
2. The SCSB shall then block the application money in the bank account specified in the ASBA, on the basis of an authorisation to this effect given by the account holder in the ASBA.
   
   
3. The application money shall remain blocked in the bank account till finalisation of the basis of allotment in the issue or till withdrawal/ failure of the issue or till withdrawal/ rejection of the application, as the case may be.
   
   
4. The application data shall thereafter be uploaded by the SCSB in the electronic bidding system through a web enabled interface provided by the Stock Exchanges.
   
   
5. Once the basis of allotment is finalized, the Registrar to the Issue shall send an appropriate request to the SCSB for unblocking the relevant bank accounts and for transferring the requisite amount to the issuer’s account.
   
6. In case of withdrawal/ failure of the issue, the amount shall be unblocked by the SCSB on receipt of information from the pre-issue merchant bankers.

Withdrawal of IPO Application Post Issue Closure

Yes, withdrawal of Initial Public Offer (IPO) application can be done even after the issue closure!

It is quite commonly known that in book built issues applicants can revise or withdraw their bids till the issue closure date. However not many investors know that they can cancel their application even after the issue closure date. In a book-built issue the applicants can withdraw their applications anytime before allotment of shares/securities by the company. Investors have the right to withdraw application before finalization of allotment even if the application money has been realized by the company.

Issue of securities in an IPO is, inter alia, governed by SEBI (Disclosures and Investors Protection) Guidelines, 2002 - popularly known as SEBI DIP Guidelines, which provides that an applicant can withdraw applications in a public issue. However, note as per the SEBI DIP Guidelines, Qualified Institutional Bidders (QIBs) are not allowed to withdraw their bid after the closure of the bid. This rule is to prevent any possible manipulation of the IPO subscription by the QIBs. For example, Cairn India IPO in 2006 saw many QIBs withdrawing bids on the last day of the issue. While the bid withdrawal was done by QIBs before the IPO closure, which is well within the guidelines, but this was not viewed very positively by the SEBI, which called for data regarding their subscription from the merchant bankers of the issue. SEBI’s action was guided by the fact that Retail investors often look at instititutional investment details of an IPO before deciding to apply for the same and they could get mislead by the intial QIB rush.

Some of the IPOs which have seen withdrawal of applications by retailers and HNI categories post closure but before allotment of shares are Purvankara Projects, Deccan Airlines, Cairn India, Housing Development Infrastructure Limited, IVR Prime, KPR Mills, SVPCL, etc.

Check your Demat Account Holding Statement

After depositing a cheque in the bank account, we normally check the account statement to ensure funds have been credited to the account. But how often do we check our demat account statement, to check whether the purchased shares have been credited to the demat account. Please read on to find out why you should be doing that.

Shares are kept in the dematerialized or electronic form in two depositories – National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). Depositories receive shares through Depository Participants (DP) and not directly from investors. DPs are registered with the Securities Exchange Board of India (SEBI) and acts as agents for depositories. To trade in shares, you need to have two accounts – a trading account with a share broker and a demat account with a DP.

You can have these two accounts with different entity, but it is advisable to keep trading and depository accounts with the same entity to avoid settlement issues. If depository account is with a different entity, for every sale transaction you need to submit Transfer Instruction For Delivery (TIFD) slip to your DP for transferring shares from your demat account to the brokers demat account for the purpose of settlement. Depositing TIFD timely is critical since if adequate number of shares are not delivered, exchange will auction your shares. Thus operationally it is much better if both the trading account and demat account are with the same entity.

However please ensure that your broker is transferring the purchased shares from the common pool account to your demat account post settlement and pay out. Normally it is assumed that once the payment for the shares purchased has been made, the shares would automatically be transferred to your demat account. In most of the cases this is true but it could be possible that the purchased shares are not transferred to the investors demat account in timely manner and kept by the broker in the common pool account and utilized for the purpose of margin requirement of other clients.

It’s like the bank not crediting the cheque proceeds to your account but keeping the same in their own account. Not having your shares in your demat account could have several implications. You are unnecessarily exposed to several risks. Your shares could be utilized by the broker for delivery obligation of another client, without you knowing about the same. This is like your broker lending your shares to a third party without your knowledge. Your broker could be utilizing your shares for his margin requirement with the exchange, then you are exposed to the risk of your shares getting sold by the exchange in case of extreme fall in the market and the broker being unable to furnish additional margin to the exchange in time. Another implication could be that you will not receive dividend and other corporate action benefits for the shares kept in the brokers common pool account. Instead your broker will get the same. So please ensure that the purchased shares are promptly transferred by your broker from the common pool account to your demat account.

While some of the DPs send the account holding statement on a periodic basis (quarterly or monthly), some of the DPs do not send the physical account holding statement. Investors can avail of online access to their demat account or subscribe to SMS based alerts to get automatic alert for any debit or credit of shares. Both CDSL and NSDL provide both online internet access and SMS based alerts facility. Important links for SMS alerts and online access facility are given below.

Online access

https://www.cdslindia.com/register/MyEasi.jsp

https://speed-e.nsdl.com/

https://speed-e.nsdl.com/SecureWeb/HomeLogin.jsp

SMS Alert

http://www.cdslindia.com/whatsnew/SMSAlert.html

https://nsdl.co.in/smsalert_nsdl.doc

Charges on Closure of Demat Account

• Shares are kept in the dematerialized or electronic form in two depositories – National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). Depositories receive shares through Depository Participants (DP) and not directly from investors. DPs are registered with the Securities Exchange Board of India (SEBI) and acts as agents for depositories. To trade in shares, you need to have two accounts – a trading account with a share broker and a demat account with a DP.
  


• Investors are free to change their DP if they are not satisfied with the service provided by the DP, or the DP is not prompt with settlement of shares bought or sold or the charges are high, or for any other reason whatsoever.
  


• To close a Depository Account, application has to be submitted in the prescribed format, which can be taken from the DP. NSDL has prescribed closure request format vide Annexure Q of the NSDL business rules.
  https://nsdl.co.in/publications/nsdlbusrules.php
  


• Closure request can also be given in a plain paper provided it contains all the required details and the following is ensured:
  1. The request letter must contain all details that are specified in the Application for Closing an Account (Annexure Q).
  2. The Client must submit duly signed delivery instruction form(s) (Annexure L) for transferring the securities, if any.
  3. All the account holder(s) must sign the request.
  https://nsdl.co.in/business/cr2002dec18_49.php
  


• All unused Transfer Instruction For Delivery (TIFD) slips has to be submitted along with the closure request.
  


• A demat account can be closed only if there are no securities in it. In case you are holding any shares in the demat account, same has to be first transferred to your new demat account with the new DP, which has to be mentioned in the closure request form.
  


• SEBI has vide circular No. MRD/DoP/Dep/Cir-22/05 dated November 09, 2005 advised that with effect from January 09, 2006, no charges shall be levied by a depository on DP and consequently, by a DP on a Beneficiary Owner (BO) when a BO transfers all the securities lying in his account to another branch of the same DP or to another DP of the same depository or another depository, provided the BO Account/s at transferee DP and at transferor DP are one and the same, i.e. identical in all respects.
  http://www.sebi.gov.in/circulars/2005/cir222005.html
  


• In case the BO Account at transferor DP is a joint account, the BO account at transferee DP should also be a joint account in the same sequence of ownership.
  


• Transfer charges will be waived if accounts of transferee DP and transferor DP are the same, i.e., identical in all respects. To avail of the waiver, a Client Master List (CML) for the target account needs to be submitted along with the closure form.
  


• All other transfer of securities consequent to closure of account, not fulfilling the above-stated criteria, would be treated like any other transaction and charged as per the schedule of charges agreed upon between the BO and the DP.

Fixed Deposit Maturity Value Calculator

Fixed Deposit as an Investment Option

Fixed Deposits have traditionally been one of the most safe investment option preferred by people with low risk appetite. Generally fixed deposits are offered by banks, but fixed deposit can also be offered by certain Non-Banking Finance Companies (NBFC) and other companies. However before putting in money in any non-bank fixed deposit, where interest rates offered are typically higher than bank fixed deposits, one should be very careful about the credit quality of the company where fixed deposit is placed.

Fixed deposit or Term deposit is a very simple investment product. As the name denotes it provides a fixed return, i.e. interest on the amount of investment. The interest is calculated and credited periodically depending on the compounding period.

What is compounding period?

Compounding period refers to the frequency with which the interest is calculated and credited to the fixed deposit amount. For example, if compounding of interest is monthly, interest for fixed deposit is calculated on a monthly basis and added to the principal amount. Thus interest for second month is calculated on the principal amount and interest for first month. Similarly interest for third month is calculated on the principal amount and interest for initial two months.

Let's see an example to understand this better. Suppose we have to calculate maturity amount of Rs. 100,000 fixed deposit for 3 months with interest rate of 12% compounded monthly. Interest for 1st month is calculated on Rs. 100,000 at 12%, which comes to Rs. 1,000. Fixed deposit principal amount at the end of 1st month becomes Rs. 101,000. Thus interest for 2nd month is calculated on Rs. 101,000, which comes to Rs. 1,010. Similarly interest for 3rd month is calculated on Rs. 102,010, which comes to Rs. 1,020.10. Thus maturity amount for 3 month deposit comes to Rs. 103,030.10.

Why is compounding period important?

This question is best answered by adding a variation to the previous example. Suppose in the example above, instead of interest being compounded monthly, it is compounded on a quarterly basis, let’s see the impact on final maturity value of the fixed deposit. Interest for 3 months comes to Rs. 3,000 and final maturity value of fixed deposit is Rs. 103,000. Note the final maturity value has declined when the compounding period has been increased. Thus we can say shorter the compounding period, higher is the effective return on fixed deposit. Reason is simple and intuitive. Shorter compounding period means interest on fixed deposit is calculated more frequently and added to the outstanding principal amount for the purpose of interest calculation for the next compounding period. This translates into more interest income on interest, which effectively is the essence of compounding.

Note that in India, interest on bank fixed deposits is normally compounded on a quarterly basis.

Fixed Deposit as Tax Saving Investment option

Investment in Fixed deposits with scheduled bank for minimum tenor of 5 years qualifies for deduction under Section 80C.

Fixed Deposit Maturity Value Calculator

Use the following Fixed Deposit Calculator for calculating the maturity amount of Fixed Deposit under various compounding options, viz. Yearly, Half-yearly, Quarterly, Monthly, Daily and without any compounding.

You can also use the Calculator for finding the Fixed Deposit amount required for realising the desired maturity amount.



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