The Securities and Exchange Board of India (SEBI) has recently introduced the concept of “accredited investor” in India as per a notification dated August 3rd.
Let's understand what it means to be an accredited investor, how to apply, what the minimum requirements and benefits are.
What Is The Meaning Of SEBI Accredited Investor?
An “accredited SEBI investor” is an individual or entity who has a net worth of at least ₹7.50 crores or an annual income of ₹2 crores.
Furthermore, individuals or entities who have a combined net worth of at least ₹5 crores and an annual income of ₹1 crore can become Accredited SEBI investors.
Trusts and corporates (except a family trust) must have a net worth of at least ₹50 crores to become accredited investors. But there’s a catch, as per SEBI guidelines.
At least half of the net worth or annual income should be invested in financial assets. SEBI has given stock exchanges and subsidiaries of depositories the power to issue accreditation certificates. You can consult a Cube Wealth coach or download a Cube Wealth App.
Depositories are intermediaries that hold an investor’s shares in Demat form. Stock exchanges include the likes of the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
Benefits Of Being A SEBI Accredited Investor
Accredited investors can access two broad benefits across the AIF and PMS domains.
1. Relaxed Alternative Investment Fund (AIF) Norms
An accredited investor has the privilege of investing in assets at a lower minimum amount than the general Alternative Investment Fund (AIF) mandate.
SEBI has introduced the term “large value funds” for accredited investors. It means an AIF in which the accredited investor has an investment of at least ₹70 crores.
Large value funds for accredited investors can invest up to:
- 50% in a company directly or through AIF units (Category I & II)
- 25% in a company directly or through AIF units (Category III)
SEBI has also permitted accredited investors to extend the tenure of large value funds beyond 2 years, contingent on terms and conditions. You can consult a Cube Wealth coach or download a Cube Wealth App.
2. Relaxed Portfolio Management Services (PMS) Norms
SEBI has defined “large value accredited investor” as someone who’s investing at least ₹10 crores with a PMS. Accredited investors can receive investment advice from the PMS to invest in unlisted securities.
The PMS can offer discretionary or non-discretionary advisory services related to unlisted securities for 100% of the AUM. This is subject to agreements between the investor and the PMS.
SEBI has also introduced guidelines for the advisory fee that’s charged by Investment Advisers for accredited investors. As an extension, SEBI has modified the regulations for AIF, PMS, and IAs.
Who Qualifies For SEBI Accreditation?
The entities that require manual accreditation:
- Individuals
- Hindu Undivided Families
- Family trusts
- Sole proprietorships
- Partnership firms
- Non-family Trusts
- Corporates
The entities that are automatically accredited:
- Central government
- State government
- Centra & state government funds
- Developmental agencies
- Qualified institutional buyers
- Category I FPIs
- Sovereign wealth funds
- Multilateral agencies
How To Apply?
Individuals or entities who meet the minimum requirements put forth by SEBI can apply to a stock exchange or depository to get accredited. The accreditation will last for 3 years. You can consult a Cube Wealth coach or download a Cube Wealth App.
How Is It Different From The Current Status Quo?
Accredited SEBI investors will have greater flexibility when it comes to investing in financial assets. The minimum requirement for AIFs have been slashed and more investments can flow into investee companies.
Furthermore, accredited SEBI investors can gain more exposure to unlisted securities with a PMS. Accredited SEBI investors can negotiate the limits and modes of fees payable with Investment Advisers (IAs).
FAQs
1. What are the criteria for becoming a SEBI Accredited Investor?
Ans. The criteria for becoming a SEBI Accredited Investor may include factors such as a minimum net worth, minimum annual income, or certain financial qualifications. These criteria are determined by SEBI and may vary over time.
2. What investment opportunities are available to SEBI Accredited Investors?
Ans. SEBI Accredited Investors are eligible to participate in private placements, initial public offerings (IPOs), and other investment opportunities that are typically restricted to institutional investors and high-net-worth individuals. They have access to a broader range of financial products and offerings.
3. How does one become a SEBI Accredited Investor?
Ans. To become a SEBI Accredited Investor, individuals or entities need to meet the eligibility criteria set by SEBI. Typically, this involves proving that they meet specific financial thresholds or other requirements as defined by SEBI.
4. Are there any risks associated with being a SEBI Accredited Investor?
Ans. While SEBI Accredited Investors have access to a wider range of investment opportunities, it's essential to remember that these opportunities often come with higher risk levels. It's crucial for investors to conduct thorough due diligence and understand the risks associated with any investment before participating.
Conclusion
A SEBI Accredited Investor, also known as a Qualified Institutional Buyer (QIB), is an individual or entity that meets specific criteria set by the Securities and Exchange Board of India (SEBI). This accreditation grants them access to a wider range of investment opportunities, including private placements, IPOs, and other financial products that are typically restricted to institutional investors and high-net-worth individuals. While this status provides access to unique investment avenues, it is important for SEBI Accredited Investors to exercise caution and conduct thorough due diligence, as these opportunities may carry higher levels of risk. SEBI's guidelines and criteria for accreditation may evolve over time, impacting an individual's or entity's eligibility
