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SEBI extends UPI-based investments to debt securities

The Securities and Exchange Board of India (SEBI) will now allow investors to make UPI payments to purchase public issues of debt securities, it said in a circular on Monday. From January 1, 2021, investors can block funds up to ₹2 lakhs through the Applications Supported by Blocked Amount (ASBA) facility.

Back in November 2018, SEBI had issued a circular requiring the use of UPI for public issues of equity shares through the use of the ASBA facility. Traditionally, investors would use a paper-based application to invest in public issues of equity or debt. But through ASBA they can block funds in their bank account, which only gets deducted once the shares (and now debt securities) get allotted. The ASBA facility for investments is routed through UPI 2.0, which is an enhanced version of the real-time payments platform. At present, there are 18 mobile-based UPI apps which allow investors to invest in public issues of equity shares, including apps by banks, PhonePe, and Google Pay.

In its circular, SEBI says that investors should be provided with an option to apply for public issues of debit securities through an app or web interface of stock-exchanges in addition to market intermediaries (brokers, registrars or depository participants) permitting the UPI mechanism to allow investors to block funds.

Under the UPI ASBA mechanism, SEBI had laid out a three-phase roll-out of the UPI ASBA mechanism, in its 2018 circular, to reduce the time-line issue closure to listing from 6 to 3 working days. Under phase-2, physical forms moving between intermediaries and Self-Certified Syndicate Banks (SCSB) was discontinued and the UPI mechanism would operate on a T+6 basis. However, under phase-3, the time-line is expected to reduce to T+3. But due to the COVID-19 pandemic the market regulator had pulled back from notifying the phase-3 roll-out of the UPI ASBA facility and said that all intermediaries and banks should continue with the phase-2 roll-out.

How can investors buy debt securities?

  1. Submit the bid application form physically at a SCSB, with ASBA as the sole mechanism for making the payment
  2. Submit the bid application to market intermediaries, along with their bank account details to block funds
  3. Submit the application form with a SCSB or market intermediaries using their bank account-linked UPI ID, provided the investment amount is up to ₹2 lakhs
  4. Submit the application through app or web interface of a stock exchange

Once the bid is entered by the SCSB or market intermediary with the stock exchanges, along with the UPI ID, PAN and Demat account details which are verified, the investor will get an SMS. In order to block the funds the investor will need to provide their consent to create a UPI mandate through their UPI PIN. Once this has been successfully done, the funds will be blocked in the investors account. Thereafter, the funds will be debited  and upon confirmation the securities will be credited to the investor’s account.

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