What Is A SEBI Accredited Investor?

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. 

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.

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.  

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)