Sebi reforms: Demat for AoPs is a step towards financial inclusion

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Subscribe to enjoy similar stories. NEW DELHI : India is taking significant steps towards financial inclusion and regulatory simplification, with the Securities and Exchange Board of India (Sebi) proposing a key reform for non-corporate entities. In a consultation paper released on 16 October 2024, the market regulator proposed allowing Associations of Persons (AoPs) to open demat accounts in their names for holding non-equity securities.

This reform aims to enhance the ease of doing business for entities such as housing societies, joint ventures, and cooperative associations by streamlining asset management. At present, AOPs, unregistered trusts and partnership firms in the country can open demat accounts in the names of natural persons associated with them. This structure creates inefficiencies when managing collective investments, as assets must be assigned to individual members.

Sebi’s new proposal would allow AoPs to directly hold non-equity securities such as corporate bonds, government securities (G-Secs), and mutual fund units in their own demat accounts. AoPs will be legally responsible for ensuring they only subscribe to the financial instruments permitted by statutes governing their structure. Importantly, the proposal excludes equity shares, indicating Sebi’s cautious approach in limiting AoPs to less volatile investments.

This move aligns with Sebi’s broader goal of promoting dematerialization, shifting away from physical securities, and simplifying financial processes for collective entities. The consultation paper highlights that Indian laws are currently unclear about whether AOPs, unregistered trusts, and partnership firms can hold certain financial assets in demat form. Sebi concluded that no changes