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No upfront payment while applying for an IPO or a Rights Issue

IPO and rights issue refunds would be relegated to the past, thanks to the Securities and Exchange Board of India. SEBI has recently given an in-principal approval to an IPO modernization proposal that has far reaching positive consequences on investors.



Here’s great news for small investors – you don’t have to pay while applying for an Initial Public Offering (IPO) or a rights issue. Yes, that’s true! The Securities and Exchange Board of India (SEBI) has recently given an in-principal approval to a new investor-friendly procedure.

Till now, you had to pay the entire amount upfront, while applying for an IPO or a rights issue. Not any more.

After this new system is implemented, when you apply for an IPO or a rights issue, the money would remain in your own bank account, and would be earmarked for the purpose of the IPO or a rights issue (that is, you won’t be able to use it – but you would still earn interest on it).

(This earmarking is also known as keeping a hold on the money, or locking the money, or making lien on the bank account).

If you are allotted the shares of the issuing company, this money would be debited from your bank account and would be paid to the company.


But – and this is where the benefit is – if you are not allotted any shares in the IPO or the rights issue (or if you are allotted lesser number of shares than you applied for), you will not have to wait for a refund – the hold placed on the money in your bank account would be removed immediately. That is, your money would be unlocked immediately.

(Want to know all the benefits of the new process, and how banks and promoters are making tons of money using the existing process? Please read “Initial Public Offering (IPO) Modernization – Benefits for small investors”)

This means that you will not have to wait for days for a refund – you can reinvest the money immediately into shares, mutual funds, or even in newer IPOs!!

And this also means that all the disputes occurring due to refunds would now be history – for example, now, there would be no complaints about non-receipt of a refund, or delayed refunds!

SEBI has said that it would announce the modalities of this process soon, and this new system – which is extremely beneficial to investors – can be implemented as early as July 2008.


This system would be implemented optionally to start with (banks would be able to choose which branches have this facility), and would later be extended to other branches and other banks.

(SEBI would introduce this system, called Application Supported by Blocked Amount (ASBA), so that retail investors bidding at the cut-off price can apply through Self-Certified Syndicate Banks (SCSBs) in which they have accounts.)

Thus, initially both the options (paying full amount upfront or having a hold on the amount in the bank account) would be available to investors, as information technology (IT) infrastructure of all the banks is not geared up to handle such a system.

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