ASBA which stands for Application Supported by Blocked Amount is an application process for subscribing to the initial public offering of shares as well as for follow on issue of currently listed stocks. This application system ensures that the applicant’s money remains in his or her bank account but it is blocked till the shares are allotted to him or her. Upon allotment, the proportionate amount of money which is needed in order to have the shares is debited by the bank and rest is deposited bank into the applicants account.
Main advantage of this system is that the money which is required for the allotment of shares is taken from the bank account only when the basis of allotment is finalized and the applicant’s application is selected for allotment. Another advantage is that since the money remains in the bank account of the applicant till he or she is allocated the shares, one doesn’t have to worry about forgo the interest for that period.
Apart from advantages one more advantage of ASBA is that since money is directly deposited by the bank back into the account applicant does not have to worry about loss or delay of refund cheque which was the case earlier.