Sebi moots demat accounts for Association of Persons to hold mutual fund units, corporate bonds, GSec

Sebi's consultation paper said that the AoP would also be held legally responsible for ensuring that they only subscribe to the financial instrument/ securities that are permitted by statutes governing the AOP.

The market regulator has proposed allowing Associations of Persons (AoPs) to hold units of mutual funds, corporate bonds and government securities in their own demat accounts.

An AoP is a group of people or entities that come together for a common purpose.

In a consultation paper released on October 16, the Securities and Exchange Board of India (Sebi) said that this was being suggested for ease-of-doing business and to encourage dematerialisation of securities held in physical form. It also said that the AoPs demat account will not be used for subscribing or holding equity shares.

The consultation paper said that the AoP would also be held legally responsible for ensuring that they only subscribe to the financial instrument/ securities that are permitted by statutes governing the AOP. Public comments and suggestions to this proposal may be sent in by November 5.

The paper said, "SEBI has received suggestions that depositories may be allowed to open demat account in the name of partnership firms, Association of Person (AOP) and unregistered trusts instead of the current practice of allowing opening of demat account only in the name of the relevant natural persons i.e. in the names of its partners, persons associated with AOP and trustees respectively."

It added that, under the current regulations, shares in a company cannot be held in the name of partnership firm, unregistered trust or AOP unless such an entity is a separate legal entity.

But there is a lack of clarity on whether these entities can hold financial assets such as corporate bonds, G-Sec and mutual fund units.

On examination, the regulator found that it was difficult to hold a common view on partnership firms and unregistered trusts holding mutual fund units, corporate bonds and government securities. The consultation paper said, "Thus at this stage, due to the legal issues involved in holding of such securities by partnership firms and unregistered trusts, no changes are being envisaged for such entities. "

It added that AoPs can be organised in different forms (like joint venture association, cooperative society, co-operative housing society, etc.) and can hold government securities, mutual fund units and corporate bonds when permitted by the applicable law.

Therefore, the proposal was being made.