Accredited Investors: Understanding Sebi's latest concept for the Indian markets

Pranati Deva
Updated: 14 Dec 2021, 03:21 PM IST
TL;DR.

Sebi has launched a new class of investors called accredited investors. Let’s understand this new concept and look at the advantages of becoming one.

Accredited investors are mainly high net worth individuals who will be permitted to invest in less regulated and more complex financial products.

Accredited investors are mainly high net worth individuals who will be permitted to invest in less regulated and more complex financial products.

Market regulator SEBI has come out with a new class of investors who are more informed and have a better understanding of the risks and returns of the markets and can avail some concessions on certain investment products. These are called 'accredited investors'.

Accredited investors are mainly high net worth individuals who will be permitted to invest in less regulated and more complex financial products. They will be identified mainly by their net worth.

Who can be an accredited investor?

"Individuals, Hindu Undivided Family (HUFs), family trusts, sole proprietorships, partnership firms, trusts and body corporates can get accreditation based on financial parameters specified by the regulator," Sebi said in a circular.

Accredited investors can be any individual, Hindu Undivided Family (HUFs), sole proprietor or family trust with a net worth of over 7.5 crore with at least half of that in financial assets will be eligible to become an accredited investor. They must have a minimum annual income of 2 crore.

Entities with a net worth of 5 crore with 50 percent in financial assets and a minimum income of 1 crore annually can also apply for the accreditation.

For trusts except for family trusts as well as businesses a minimum net worth of 50 crore is mandatory for the eligibility while in the case of a partnership, each partner must meet the criteria separately.

How to become an Accredited Investor

In order to become an accredited investor, the eligible entities will have to get accreditation certificates from stock exchanges and depositories.

They will have to apply for this accreditation and once the eligibility of the investor is determined, the certificate will be issued, which will be valid for a period of 1 year. If the investor meets the criteria for their years consecutively, a certificate for 2 years can be issued to the investor.

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All you need to know about accresited investors

Who can provide accreditation

Subsidiaries of depositories or stock exchanges with a minimum of 20 years of presence in the Indian markets and a minimum net worth of 200 crore can apply to become an accreditation agency.

They must have nationwide terminals and service centers for grievance redressal in at least 20 cities.

Advantages of becoming an accredited investor

Accredited investors will have flexibility in the minimum investment amounts for products like portfolio management services (PMS) and alternative investment funds (AIF).

In AIF, where the minimum investment for an accredited investor is 70 crore, an accredited investor can avail relaxation from regulatory requirements like an extension of tenure, diversification norms, etc. Meanwhile, in PMS, an accredited investor can get relaxation for investing in unlisted entities. In this, the minimum investment requirement for an accredited investor is 10 crore.

"Portfolio managers may offer discretionary or non-discretionary or advisory services for investment up to 100 percent of the assets under management of such accredited investors in unlisted securities," the SEBI notification stated.

Accredited investors are a new category of investors launched by SEBI with major relaxations. But it is imminent to have a high net worth and deep understanding of the stock markets to become one.

First Published: 14 Dec 2021, 03:21 PM IST
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