The Indian securities market is poised to see the growth of Accredited Investors soon, after Securities and Exchange Board of India (SEBI) made it official in the notice dated August 3, 2021.
Accredited Investors is a popular concept in evolved asset management spaces such as the ones established in the United States of America, Singapore, and Hong Kong.
They primarily consist of individuals or business entities who are given access to trade securities that are not registered in the books of financial authorities and are required to adhere only to relaxed compliance and regulatory guidelines. They can also participate in investment products with less than minimum amounts mandated by Alternative Investment Fund (AIF) and Portfolio Management Services (PMS).
Why the preferential treatment? Accredited investors have a massive risk appetite and come with year’s worth of industry specific experience. They also need to fulfill requirements like: net worth, asset size, income, and asset size. This move by SEBI is a much welcomed step towards differentiating between retail and sophisticated investors.
So who can become an Accredited Investor?
Individuals, Hindu Undivided Family (HUFs), family trusts, sole proprietorships, partnership firms, trusts, and corporates can secure accreditation based on certain qualifiers. To this effect, subsidiaries of depositories and stock exchanges will be authorised to issue accreditation certificates of eligible investors.
Eligibility for HUFs, individuals, family trusts or sole proprietorships is set at an annual income of at least ₹ 2 crore or a minimum net worth of ₹7.50 crore with at least half of it in financial assets.
Another option for such entities would be to have an annual income of ₹ 1 crore and a net worth of ₹5 crore with ₹2.5 crore in financial assets. As far trusts are concerned, any trusts apart from family trusts would require a net worth of ₹50 crore and corporate would need to show a mandatory net worth of ₹50 crore.
In yet another development SEBI has deemed a few entities to be natural Accredited Investors. Such entities will not need to apply for a certification. These include funds set up by central and state governments, developmental agencies, qualified institutional buyers, category I FPIs, multilateral agencies, and sovereign wealth funds.
With the recent changes. SEBI has been able to better define the role of portfolio managers. According to the guidelines, portfolio managers will be able to offer discretionary or non-discretionary or advisory services for investments that amount to up to 100% of the assets under management for unlisted securities.
This new class of investors will now have the leverage to create customised financial investments in AIFs and PMs, all while being backed by seasoned advisors to suit their risk appetite and investment thesis.