Opening of Demat Account in name of Association of Persons

AoP(s) can now hold units of mutual funds, corporate bonds, and government securities in these demat accounts. However, equity shares remain explicitly excluded, meaning that AoP(s) must continue holding them in demat accounts in the name of natural persons. Through the circular, the enabling provision has been inserted as paragraph 1.2.6.A., i.e., ‘Opening of Demat Account in the name of Association of Persons (AoP)” under the Master Circular of Depositories dated 03 December 2024. The new circular becomes effective from 02 June 2025. The key provisions of the circular include: 

• AoPs shall only hold financial instruments or securities permitted by the applicable law governing the constitution of the AoP; 

• the AoP must confirm, at the time of opening the demat account, that it holds only such securities permitted by applicable law, and it will not subscribe to or hold equity shares through the said demat account. 

• a designated Principal Officer, such as a treasurer, manager, agent, or an individual involved in the AoP’s management or administration, will act as its legal representative in case of disputes; 

• the members of the AoP will remain jointly and severally liable on behalf of the AoP at all times. 

Our Thoughts

The recent SEBI circular allowing AoP(s) to open demat accounts in their own name is a welcome step toward improving ease of doing business. However, the exclusion of equity shares is well-founded, since AoPs involve multiple stakeholders, and accordingly, managing accountability and identifying beneficial ownership could be complex. In contrast, low-risk instruments such as units of mutual funds, corporate bonds, and government securities do not carry voting rights, thereby reducing compliance burdens. This distinction ensures regulatory clarity and transparency while granting AoP(s) greater flexibility in managing investments.