SEBI Permits Associations of Persons (AoPs) to Open Demat Accounts

The Securities and Exchange Board of India (Sebi) has announced that Associations of Persons (AoP) can now open demat accounts in their own name, a move aimed at improving investment accessibility and regulatory transparency. This decision, which was communicated through a circular on Tuesday, allows AoPs to hold financial instruments such as mutual fund units, corporate bonds, and government securities in dematerialized form. However, these accounts will not be permitted for holding equity shares.

This change comes in response to industry demands and representations made to Sebi requesting direct account ownership for AoPs. By enabling these entities to open demat accounts, Sebi seeks to enhance ease of doing business while ensuring compliance with financial regulations. The new rule is set to take effect from June 2, 2025.

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Objective and Implications

The primary goal behind this regulatory amendment is to facilitate investments by AoPs while maintaining strict oversight. Previously, AoPs had limited options for managing their securities, often relying on individual members to hold investments on behalf of the group. This created administrative challenges and potential legal ambiguities in case of disputes. By allowing AoPs to register demat accounts in their own name, Sebi is streamlining the process and ensuring clear accountability.

This decision will particularly benefit investment groups, trusts, cooperative societies, and other collective entities that operate as AoPs. With access to demat accounts, they will be able to manage their securities more efficiently and with greater transparency. However, the restriction on equity shares indicates that Sebi still wants to maintain certain safeguards, likely to prevent misuse or speculative trading by such groups.

Regulatory Compliance and Responsibilities

To ensure compliance, Sebi has mandated that AoPs provide Permanent Account Number (PAN) details of the entity itself, as well as those of its Principal Officer, such as a treasurer or secretary. The Principal Officer will act as the legal representative in case of any disputes or legal matters, and all AoP members will hold joint responsibility for the demat account.

These compliance measures align with broader financial regulations that aim to prevent fraud, money laundering, and unauthorized financial activities. By ensuring clear identification of account holders and their responsibilities, Sebi is maintaining a high standard of financial governance.

Industry Standards and Disclosure Regulations

In a separate development, Sebi has directed Industry Standards Forum (ISF) member associations and stock exchanges to publish industry standards related to Listing Obligations and Disclosure Requirements (LODR) on their websites. The ISF, which includes prominent organizations such as Assocham, the Confederation of Indian Industry (CII), and the Federation of Indian Chambers of Commerce and Industry (Ficci), has been working with Sebi to establish best practices for corporate disclosures.

The aim of these standards is to simplify and improve the process of material disclosures by listed companies. By ensuring that companies follow a uniform set of guidelines, Sebi is promoting transparency and accountability in financial markets. Listed firms will be expected to comply with these standards to ensure regulatory adherence and investor confidence.

Impact on the Investment Landscape

The approval of demat accounts for AoPs represents a significant step in financial inclusivity. Many investment groups and cooperative entities have faced difficulties in managing securities due to restrictions in financial infrastructure. By offering a clear legal framework for AoPs, Sebi is encouraging broader participation in financial markets.

However, the restriction on holding equity shares suggests that Sebi remains cautious about speculative activities by AoPs. While mutual funds, corporate bonds, and government securities are relatively stable investment instruments, direct stock ownership involves greater risks and potential market manipulation concerns.

The move also highlights Sebi’s ongoing efforts to enhance financial market accessibility while maintaining strict compliance measures. By balancing investment flexibility with regulatory oversight, Sebi ensures that capital markets remain secure, transparent, and efficient.

The decision to allow AoPs to open demat accounts is a progressive step toward simplifying investment processes for collective entities. With regulatory safeguards in place, this change will enable AoPs to participate in financial markets more efficiently while ensuring clear accountability and compliance.

Furthermore, the introduction of industry standards for corporate disclosures underlines Sebi’s commitment to enhancing transparency and investor confidence. As the financial ecosystem evolves, these measures will help create a more structured and regulated investment environment, benefiting both institutional and retail investors.