On February 25, 2025, the Securities and Exchange Board of India (SEBI) issued a new circular permitting Associations of Persons (AoPs) to open demat accounts in their own name. This move is designed to simplify business processes and promote easier investment in securities such as mutual fund units, corporate bonds, and government securities for these entities.
Background & Decision
Earlier, Associations of Persons (AoPs) could only open demat accounts under the names of individual natural persons representing the entity. However, SEBI received requests to allow AoPs to open demat accounts directly in their own name. After reviewing the legal framework and consulting with stakeholders, SEBI has decided to permit AoPs to open demat accounts in their own name for certain securities, subject to specific conditions.
Key Provisions of the Circular
SEBI has updated the Master Circular for Depositories (dated December 3, 2024) with a new provision titled “Opening of Demat Account in the Name of Association of Persons (AoP).” The main points of this amendment include:
Eligibility and Permitted Securities:
AoPs can hold dematerialized units of mutual funds, corporate bonds, and government securities.
AoPs must subscribe only to financial instruments allowed by their governing documents.
Equity shares cannot be held or subscribed to through these demat accounts.
Compliance and Documentation:
The PAN details of both the AoP and its Principal Officer must be provided.
The Principal Officer refers to the secretary, treasurer, manager, agent, or any person responsible for managing the AoP.
While opening the account, the AoP must declare adherence to all applicable statutory requirements.
Legal and Liability Provisions:
In case of disputes, the Principal Officer will act as the legal representative of the AoP.
All AoP members will be jointly and severally liable for the obligations of the AoP.
Implementation and Applicability
To implement this new rule, SEBI has instructed depositories to:
Update their systems accordingly.
Amend relevant bye-laws, rules, and regulations.
Notify market participants and investors via their official websites.
These provisions will come into effect starting June 2, 2025.
Who Are Associations of Persons (AoPs)?
An Association of Persons (AoP) is a group consisting of individuals, companies, or other entities that come together to pursue a common goal or conduct joint business activities. Unlike a corporation, an AoP does not have a separate legal identity but is recognized as a taxable entity under income tax laws. Members share profits and liabilities according to agreed terms, with taxation applied either at the entity level or individually, based on applicable tax regulations.
For a deeper understanding, refer to the basics of Associations of Persons
Key Takeaways
SEBI Approval: AoPs can now open demat accounts in their own name for holding certain securities.
Permitted Securities: Only mutual fund units, corporate bonds, and government securities are allowed; equity shares are excluded.
Compliance Requirements: AoPs must provide PAN details of both the AoP and its Principal Officer, ensuring adherence to governing statutes.
Liability and Legal Provisions: The Principal Officer acts as the legal representative in disputes, with all members jointly and severally liable.
Implementation: The decision takes effect from June 2, 2025. Depositories are required to update systems and notify investors accordingly.
About the Author
Manisha
Manisha is a seasoned content writer specializing in business registration, tax laws, trademark regulations, and company compliance. His expert articles provide clear, practical guidance that helps businesses confidently navigate complex legal and regulatory challenges.
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