SEBI Notifies Framework For Accredited Investors
Earlier this month, SEBI ushered in a new class of investors—accredited investors—that can avail of certain concessions from regulatory requirements applicable to investment products. The world over, accredited investors are high-net-worth investors permitted to invest in unregulated or less-regulated investment products.
The framework for accredited investors was approved by the Securities and Exchange Board of India in its board meeting held on June 29. The securities market regulator has now notified the modalities for accredited investors including eligibility criteria and procedure for accreditation.
Eligibility Criteria For Accredited Investors
The following entities are eligible to apply for accreditation:
Individuals, Hindu undivided families, family trusts and sole proprietorships whose:
Annual income is Rs 2 crore or more; or
Net worth is Rs 7.5 crore or more, with at least Rs 3.75 crore held in financial assets; or
Annual income is Rs 1 crore or more and whose net worth is Rs 5 crore, with at least Rs 2.5 crore as financial assets.
Partnership firms in which each partner independently meets the income/net worth criteria for accreditation.
Trusts (other than family trusts) and body corporates with net worth of Rs 50 crore or more.
The primary residence of the individual, karta of HUF and the sole proprietor will not be included in the net worth.
Mechanism for calculation of net worth of trusts and body corporates has also been provided.
Eligibility of foreign investors will be determined on the basis of the rupee equivalent of their income/net worth.
Accreditation will be valid for a period of one year. If the investor consistently meets the eligibility criteria over three years, the accreditation will be valid for a period of two years.
Investors desirous of being categorised as accredited will have to apply to accreditation agencies.
Subsidiaries of depositories and recognised stock exchanges are eligible to apply to SEBI for recognition as accreditation agencies.
In case of subsidiaries of stock exchanges, the exchange should have:
Minimum 20 years presence in Indian securities market.
Minimum net worth of Rs 200 crore.
Presence of nationwide terminals, investor grievance redressal mechanisms, and investor service centers in at least 20 cities.
The application for accreditation agency has to be made within three weeks from the date of this circular.
The accreditation procedure involves an application to be submitted to the accreditation agency. The agency has to verify the investor is fit and proper, not a willful defaulter or a fugitive economic offender, etc. and then issue accreditation certificate.
The investor can then submit the certificate to the investment provider as well as an undertaking of consent being granted, ability to undertake financial risk, possession of necessary knowledge and understanding that the investment product may not be subject to the same level of regulatory oversight as more common products.
The investment provider must then independently verify the investor's accreditation status and can obtain further undertakings, if needed.
The client agreement between the accredited investor and investment provider should contain:
Details of regulatory concessions agreed between the both.
Consequences if the investor loses accreditation.
Accredited investors can withdraw consent but will then lose any concessions under SEBI regulations. Also, the investment will be grandfathered.
Investors in pooled investment products launched exclusively for accredited investors will not have the flexibility to withdraw their consent.
Benefits To Accredited Investors
To get accredited, investors will have to submit:
Income tax returns
Net worth certificate
Real estate valuation proof to support net worth
Undertaking that investor is not a willful defaulter, fugitive economic offender, debarred from the securities market, submissions made are true and correct, etc.
Based on the amendments made in August to the Alternative Investment Funds Regulations, Portfolio Managers Regulations and Investment Advisers) Regulations, so far accredited investors will not be subject to minimum investment thresholds for PMS and AIF and will also be eligible to invest in PMS with 100% assets under management as unlisted securities, but that's only for 'large value accredited investors'.