11 Apr, 2017
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Some important aspects of
Demat account and Application Supported by blocked account (ASBA)
- Demat account
Earlier, shares and securities were issued to investors in physical form (like certificates etc.). Physical possession of certificates had several risks – like fear of theft, management problem for individuals who used to invest in several shares or securities at several times, or wear and tear of those certificates (If you lose any certificate, you lose your valuable investment return)
Then dematerialized account (in short Demat account) was invented to reduce those risks. In this account, all type of shares and securities are being stored in dematerialized / digital form (meaning material form is converted to digital form).
Operating a Demat account is as simple as operating an online bank account. After opening a Demat account, you will be quoted a demat account number. You will use this account number to all type of electronic settlements of trade in shares or other securities.
- Demat Conversion – Rematerialization
Converting physical records of investments into digital form is known as “dematerialization” of securities. The reverse is also possible if someone wants to use physical records instead of demat account, and the process is known as “rematerialization“.
In that case, one has to fill in a Remat Request Form (RRF) to convert the digital certificates into equivalent physical certificates.
- Investment on Shares
The traditional process of applying in Initial Public Offers (IPO), Follow-on Public Offers (FPO), Right Issues, etc. (i.e., investing in shares) is to use cheque as a mode of payment and submitting applications.
It has some problems associated –
Investors have to pay the entire fee upfront (at the time of bidding for shares)Refunds (in case bidding failed) through cheques usually take up to 45 days.
- Applications Supported by Blocked Amount (ASBA)
SEBI (capital market regulator) introduced ASBA in September, 2008 in Indian Capital market to facilitate the application process for shares to benefit the investors, by removing the above problems.
ASBA is an application to buy shares, where investors authorize the bank (mediates the process) to block the application money in his bank account. Investors cannot withdraw the blocked amount, until the whole process is over.
If the investor is selected for share (means he is allotted shares / bidding successful), then his blocked amount will be automatically debited from his account, and an equivalent share will be credited in his Demat Account.If the investor is not selected for share (means his bidding is unsuccessful), then the blocked amount will be unblocked, and he can withdraw that amount as per his wish.
Under ASBA, the blocked amount will continue to earn interest during the application processing period, if held in an interest bearing account (like savings account, etc.). Bank will mark a lien on the deposit, which will be removed immediately after the allotment process is completed.
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