NFO subscription: Taking the ASBA route

In our earlier column we discussed about demat accounts and how investors can bring all their physical mutual fund units into the demat account. This week we look at how ‘ASBA' can be used when applying for mutual fund units through the new fund offer route and how units are listed in the exchanges for trading.

ASBA stands for “Application supported by blocked amount”. It is an authorisation to block the amount in the bank account and release it after the allotment process is complete. ASBA was introduced by SEBI for mutual funds from October 2010.

Whenever there is a New Fund Offer (NFO) similar to a stock IPO, investors can subscribe to the units of the new scheme that is being launched. Normally, investors give a cheque along with the application form and submit that form and cheque to the collecting bank or to the asset management company or the registrar & transfer agent (RTA).

The cheque is then banked and sent for clearing and the application sent to the RTA for processing. The RTA processes the application and allots the units. In case the cheque is not cleared, the allocation of units is reversed and intimation is sent to the investor. This is the normal procedure.

Designated banks : With ASBA, the investor fills up a form and submits it to the designated bank (called self-certified syndicated banks, or SCSB) which are designated for this purpose.

The investor must have a bank account in any of these banks. The names of these banks are available on the websites of the NSE, the BSE and SEBI. The names are also mentioned on the application form.

Based on this application of the investor, which indicates the amount that he intends investing in the scheme's NFO, the bank blocks the said amount in his or her account and issues an acknowledgement. The banks then upload the information to the exchange, which, in turn, intimates the RTA about the application. The RTA then proceeds to allot the units and sends the information through the exchange for the release of the blocked amount. The bank, in turn, credits the amount to the account of the scheme.

In this manner, the need for a refund is obviated and also the fund is sure of the receipt of the amount. Also the investor's bank account is debited only after the allotment of units.

Listing of units : Making the units available for buying and selling for the investor is called listing. Units can be made available for trading in the stock exchanges, the BSE and the NSE, the country's two main exchanges.

Only when the units are listed can they be bought or sold. The asset management company registers the scheme at the exchange where it wants the units to be traded. The AMC pays a fee for the purpose of listing as per the rules and regulations laid down from time to time. The exchange then allots a number called the ISIN (International Securities Identification number), which must be quoted for all the transactions. This is a 12-digit alpha-numeric unique number that is allotted to every scheme.

Once this is done, and a confirmatory acknowledgement is received from the exchange, it admits the units for trading, after which the units can be traded quoting the ISIN of that scheme. In essence, investors can buy or sell mutual fund units once the ISIN is made available.

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