Introduction

The Securities and Exchange Board of India (SEBI) has introduced a crucial regulatory update allowing Associations of Persons (AoPs) to open demat accounts in their own name. This decision, which comes into effect on June 2, 2025, is aimed at simplifying investment structures for group investors, improving regulatory oversight, and ensuring better market transparency. Until now, AoPs could not directly hold financial securities in dematerialised form. This often led to operational inefficiencies, requiring individual members to maintain separate accounts, thereby increasing compliance burdens. With this regulatory shift, AoPs can now directly invest in permitted securities, streamlining group investments and enhancing accountability.

Understanding Associations of Persons (AoPs) in Financial Markets

An Association of Persons (AoP) is a group of individuals or entities that come together for a common purpose, which can include investment activities, business operations, or asset management. These groups do not have a separate legal identity like companies but operate under a common agreement.

How AoPs Participate in Investment Markets

Before SEBI’s latest regulation, AoPs faced several investment challenges:

• No direct demat access – Investments had to be made through individual members, leading to fragmented holdings.
• Complex compliance processes – Taxation and regulatory filings were often complicated due to multiple stakeholders.
• Lack of centralised investment control – Managing a joint investment portfolio was cumbersome without a unified account.

By allowing AoPs to open dedicated demat accounts, SEBI has addressed these challenges, making investments more accessible and structured.

Permitted and Restricted Securities for AoPs

While SEBI has opened doors for AoPs to invest through demat accounts, there are strict guidelines on what they can and cannot hold to ensure stability and prevent misuse.

Permitted Securities for AoP Demat Accounts

• Mutual Fund Units – Allowing investment in professionally managed diversified funds.
• Corporate Bonds – Providing access to fixed-income instruments issued by companies.
• Government Securities (G-Secs) – Enabling AoPs to invest in sovereign-backed instruments.

Restricted Securities: No Equity Investments

• Equity Shares are NOT allowed – AoPs cannot invest in individual stocks via their demat accounts.

Why this restriction?

SEBI’s decision to prohibit equity holdings ensures that AoPs do not engage in speculative trading or market manipulation. Since AoPs involve multiple stakeholders, managing accountability and ownership stakes in equity shares could lead to regulatory and legal complications. By limiting investments to low-risk, structured instruments, SEBI is ensuring that AoP investments remain stable, transparent, and compliant with existing laws.

Regulatory Compliance and Responsibilities for AoPs

To maintain market discipline and investor protection, SEBI has introduced a comprehensive compliance framework that AoPs must adhere to.

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Key Compliance Measures for AoP Demat Accounts

To ensure transparency, accountability, and regulatory compliance, SEBI has introduced strict guidelines for Associations of Persons (AoPs) opening demat accounts. These measures are essential to prevent misuse, maintain market stability, and ensure adherence to SEBI’s broader framework governing investment structures.

1. PAN Requirements for AoPs and Principal Officers

To open a demat account, an AoP must provide its PAN details as part of the Know Your Customer (KYC) process. Additionally, the Principal Officer—who could be a Secretary, Treasurer, Manager, or any person managing the AoP’s financial activities—must also submit their PAN details. This requirement ensures that SEBI can track and regulate transactions effectively, reducing the risk of fraudulent or non-compliant activities.

2. Legal Responsibilities of AoPs

The Principal Officer of the AoP will act as its legal representative in case of disputes, making it easier to resolve legal and financial issues. Furthermore, all members of the AoP will be jointly and severally liable for any obligations related to the demat account. This provision ensures collective accountability, preventing individual members from shifting responsibilities or liabilities.

3. Verification by Depository Participants (DPs)

Before opening a demat account, Depository Participants (DPs) must verify that the AoP adheres to SEBI’s regulations. This includes ensuring that the AoP:

• Only holds permitted securities such as mutual funds, corporate bonds, and government securities.
• Does not use the account for equity investments, which are strictly prohibited for AoPs.

These compliance measures reinforce SEBI’s commitment to maintaining a structured, transparent, and well-regulated securities market while enabling group investors to participate within defined boundaries.

Impact on the Securities Market and Institutional Investing

This new regulatory framework is expected to bring multiple benefits to both investors and the broader financial ecosystem.

1. Enhanced Market Participation

By allowing AoPs to hold investments collectively, SEBI is fostering greater participation in structured financial instruments such as mutual funds and bonds. Investment clubs, professional associations, and business partnerships can now manage their portfolios more efficiently.

2. Encouraging Institutional-Like Investing

AoPs can now access corporate bonds and government securities, similar to large institutional investors. This opens up new avenues for structured capital allocation and long-term wealth creation.

3. Strengthening Market Oversight

With clear investment limitations and compliance requirements, SEBI ensures that AoP investments remain transparent and well-regulated. By preventing equity speculation, this move supports market stability and minimises risks associated with unregulated collective investments.

How to Open a Demat Account as an AoP?

From June 2, 2025, AoPs can follow these steps to open a demat account under SEBI’s new regulations:

1 Step: Gather Required Documents

• PAN card of the AoP
• PAN card of the Principal Officer (Secretary, Treasurer, or Manager)
• Constitution documents of the AoP
• KYC details of authorized signatories

2 Step: Select a Depository Participant (DP)

• Choose a SEBI-registered DP that supports AoP open demat accounts.

3 Step: Submit Compliance Declarations

• Confirm that the account will only hold permitted securities (mutual funds, bonds, and G-Secs).

4 Step: Verification and Approval

• The DP will review the application, verify documents, and approve the account opening.

Once the Demat account is active, the AoP can start investing in mutual funds, corporate bonds, and government securities in a fully compliant and transparent manner.

Conclusion

SEBI’s decision to allow Associations of Persons (AoPs) to open demat accounts is a significant step toward financial inclusion and market transparency. By simplifying investment management, reducing regulatory complexities, and restricting speculative investments, this move ensures a structured approach for group investors.

As the June 2025 implementation date nears, Jainam Broking Ltd. encourages market participants to understand compliance requirements and explore suitable investment avenues. This regulatory shift aligns with SEBI’s broader vision of enhancing investor protection and fostering a well-regulated securities market.

How will this reshape group investment strategies in India? The coming years will provide clarity on its impact. Open a Demat Account with Jainam!

Source: SEBI