SEBI Allows Demat Account Opening in AoP’s Name

To facilitate ease of doing business, the Securities and Exchange Board of India (SEBI) has allowed associations of persons (AoPs) to open demat accounts to hold securities, such as mutual fund units, corporate bonds and government securities, in their own names.

This move is expected to encourage the dematerialisation of securities that AoPs currently hold in physical form.

Although AoPs are recognised as persons for taxation purposes, they are not juristic persons and thus cannot become members of a company. However, in its October 2024 consultation paper, SEBI noted that AOPs can be organised in various forms such as joint venture associations, cooperative societies, cooperative housing societies, etc. and can hold government securities, mutual fund units and corporate bonds when permitted by the applicable law.

It was determined that as AoPs can hold securities other than equities in their names, the beneficial owner (BO) account can be in the AoP’s name. SEBI thus proposed to allow the holding of units of mutual funds, corporate bonds, and government securities by AOPs in their own demat accounts.

As per SEBI’s circular dated February 25, 2025, AoPs are permitted to open demat accounts in their own names, subject to the following conditions:

• AoPs must ensure they subscribe only to securities permitted by statutes governing their constitution.
• PAN card details of the AoP and its principal officer (i.e., secretary, treasurer, manager, etc.) have to be obtained.
• Depository participants must obtain AoP’s confirmation that it:
  • holds only such securities in dematerialised form as permitted by the statutes governing its constitution.
  • will not use the demat account for subscribing to or holding equity shares.
• In case of any dispute, the AoP’s principal officer will be treated as the legal representative of the AoP.
• The members of the AoP will be jointly and severally liable on behalf of the AoP.

These provisions will come into effect on June 2, 2025.