SEBI has issued a circular on February 25, 2025 that focuses on the facilitation of demat accounts for AoPs to hold securities such as mutual funds, corporate bonds, and government securities in dematerialized form. The decision comes after SEBI received numerous representations requesting the option for AoPs to directly open demat accounts in their name.
The New Guidelines for AoP Demat Accounts
Prior to this circular, the opening of demat accounts was typically restricted to natural persons and certain other entities. However, after reviewing legal provisions and holding detailed discussions with stakeholders, SEBI has taken steps to simplify the process and enhance ease of doing business. Under the new guidelines, AoPs are now allowed to open demat accounts in their name for holding financial instruments like mutual funds, corporate bonds, and government securities. This shift ensures that AoPs can participate more freely in the securities market.
The updated guidelines will be incorporated into the SEBI Master Circular for Depositories, with an addition of a new paragraph, 1.2.6.A, which elaborates on the following conditions for AoPs seeking to open demat accounts
- Responsibility for Financial Instruments: AoPs are required to ensure that they only subscribe to financial instruments or securities allowed by the statutes governing their constitution. This makes it clear that AoPs are bound by the restrictions of their governing laws and must act within those limits.
- Pan Card Requirement: As part of the account opening process, the AoP must provide the PAN card details of both the AoP itself and its “Principal Officer.” This Principal Officer can be an individual holding a managerial or administrative position within the AoP, such as a secretary, treasurer, or manager.
- Confirmation Process: When opening a demat account for the AoP, Depository Participants (DPs) are required to confirm that the AoP holds only permitted securities in dematerialized form. The demat account is not used for subscribing or holding equity shares, ensuring that AoPs do not engage in activities outside their allowed scope.
- Liabilities of AoP Members: In case of disputes, the Principal Officer of the AoP is designated as the legal representative. Furthermore, members of the AoP are jointly and severally liable for obligations on behalf of the AoP, which ensures that accountability is shared among the members.
Implementation and Impact
SEBI has instructed depositories to take the necessary steps to implement this circular, including updating relevant bye-laws, rules, and regulations. These measures are expected to be fully operational by June 2, 2025, providing AoPs with a more structured and regulated process for managing their financial instruments.
This move is seen as an important step in promoting transparency and ease of doing business for AoPs. By facilitating easier access to demat accounts, SEBI aims to enhance the participation of smaller, non-corporate entities in the financial markets. It also provides a clearer framework for accountability within AoPs, ensuring proper governance and compliance with securities regulations.
The provisions of this circular are expected to help AoPs engage more effectively in the market, thereby increasing financial inclusion and broadening investment opportunities for these entities.
