The Securities and Exchange Board of India (SEBI) introduced a significant reform proposal on 16 October 2024, aimed at allowing Associations of Persons (AoPs) to establish demat accounts under their own names for non-equity securities. This initiative targets entities like housing societies and cooperative associations, streamlining their financial operations.

 

Currently, AoPs must open demat accounts through individual members, creating unnecessary complexity in managing collective investments. The new proposal would enable these organizations to directly hold various financial instruments, including corporate bonds, government securities, and mutual fund units.

 

The reform excludes equity shares from the permitted instruments, reflecting SEBI's measured approach to protect these entities from market volatility. AoPs will bear responsibility for ensuring compliance with their governing statutes regarding permitted investments.

 

While partnership firms and unregistered trusts were considered in the consultation paper, SEBI determined that no changes would be implemented for these entities due to legal complexities. The proposal remains open for public feedback until 5 November 2024.

 

This reform positions India more conservatively compared to international markets, where similar entities often enjoy broader investment rights. For instance, in the United States, Germany, France, and Russia, comparable organizations can typically hold both equity and non-equity securities.

 

SEBI's approach emphasizes compliance through requirements such as Permanent Account Number (PAN) submission for demat account opening. This reform represents a careful balance between promoting financial inclusion and maintaining market stability, while potentially paving the way for future expansion of investment options for AoPs as India's financial markets continue to mature.

 

The initiative marks an important step in modernizing India's financial landscape, though it maintains a more cautious stance compared to global standards. As markets evolve, there may be room for expanding AoPs' participation to include equity investments, bringing India's regulatory framework closer to international practices.