IPO subscription through UPI – What retailers need to know?

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To make the process of investing in shares and securities easier, faster and seamless, the Securities and Exchange Board of India (SEBI) and National Payments Corporation of India (NPCI) has made it compulsory that the retail investors can apply for the Initial Public Offerings (IPOs) only through the UPI based Applications Supported by Blocked Amount (ASBA) mode.

More importantly, investors who want to subscribe to an IPO can easily do so by their smartphones using UPI.

UPI – What is it?

UPI (Unified Payments Interface), introduced by the National Payments Corporation of India (NPCI),  is a real-time payment system that allows users to transfer their funds from one bank account to another immediately and easily via their cell phones.

UPI facility for IPO subscription will help to reduce the time gap between the closing of an IPO and listing of the shares as UPI settlement is instant and less expensive than any other mode of online payment. Earlier, it was taking 6 days but now it will take only 3 days for the whole procedure.

Payment and blocking of funds in the IPO process is done with the UPI ID. But for making UPI payments, the investor must have a UPI ID. UPI ID can be easily created online via smartphone through any of the popular UPI applications.

Know about ASBA

ASBA is a facility in which the investor allows the bank to restrict the payment to the issuer until the shares are actually allotted to him. Besides, If the securities are not allotted within a time period of 3 days, the amount will be refunded to the investor.

In ASBA, once the bank receives the application, it blocks the amount that is equivalent to the value of shares that the investor has applied for. Therefore, when the shares are successfully allotted by the company, the amount is debited from the bank account of the investor and the shares are received in the Demat account.

Procedure to bid through UPIs:

  • The user should submit an online application form to the intermediary dealing in the particular IPO. The form is easily available on the official websites of various stock exchanges, brokers and banks.
  • In the application form, the investor should also enter his details regarding Demat account, bank account, bid details, and UPI ID. Besides, the name of the bank entered in the application form must be visible on the website of SEBI otherwise the application will not be accepted.
  • When the user submits his application form, the form is transferred to the stock exchanges for the validation of Demat account of the user with CDSL or NSDL.
  • After successful validation of the details, the UPI details of the user will be shared by the stock exchange to the sponsor bank.
  • The sponsor bank will then send a mandate request to the investor about the authorization to block the amount of funds required for the number of shares on which the investor has placed the bid for in the IPO application form. The investor can give the authorization by using his UPI PIN through the UPI mobile app.
  • Once the request is accepted, the ASPA will block the required amount and when the shares are allotted by the company, the funds will be debited from the investor’s bank account.
  • It is necessary that the investor’s bank is live on the UPI app. If the bank is not live on the UPI, the investor may submit his application form with SCSBs, or using the facility of linked online trading, Demat and bank account. At present, there are 47 banks that are live on UPI with the IPO feature.

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An MBA in finance, I like to cover the wide range of topics related to Taxation, SEBI, Finance and anything that is Public Helpful. The motive is always to make it simpler for the taxpayers understand the system better and take informed decisions.

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