Explained: What SEBI norms for accredited investors mean

Earlier this month, the Securities and Exchange Board of India (SEBI) introduced the concept of “accredited investors” as part of initiatives to open a new route of raising funds from sophisticated investors. Now, the capital markets regulator has come out with detailed guidelines to implement a framework for accredited investors.

SEBI has announced detailed guidelines on the eligibility criteria for accredited investors, the procedures for accreditation and to seek benefits linked to accreditation, it said in a circular. It also has given flexibility to investors to withdraw their “consent” and stop availing benefits of accreditation.

Such investors may get flexibility in minimum investment amount or concessions from specific regulatory requirements applicable to investment products, subject to conditions applicable.

So, how does one become an accredited investor?

Anyone who wants to be recognised as an accredited investor will have to approach an Accreditation Agency for accreditation. These agencies will verify the documents submitted by the applicants for accreditation, process the applications and issue an accreditation certificate. The agencies will also maintain data of such accredited investors.

What are the Accreditation Agencies?

According to SEBI, subsidiaries of stock exchanges and depositories can carry out the accreditation process. The subsidiaries will have to apply to SEBI through the concerned stock exchange or depository for recognition as an accreditation agency.

This is subject to the condition that the stock exchange should have minimum 20 years of presence in the Indian securities market and should have a net worth of at least Rs 200 crore.

Also, the exchange must have nationwide terminals and investor grievance redressal mechanisms in place, including arbitration and presence of Investor Service Centres in at least 20 cities.

The agencies will issue accreditation certificates to eligible investors. Each certificate will have a unique accreditation number, name of the accreditation agency, PAN of the applicant and validity of accreditation.
What’s the criteria to become an accredited investor?

A person will be identified as an accredited investor on the basis of either net worth or income.
Individuals, Hindu Undivided Family (HUFs), family trusts, sole proprietorships, partnership firms, trusts and body corporates can get accreditation if their annual income is at least Rs 2 crore or net worth is at least Rs 7.50 crore, with at least half of it in financial assets.

These entities can also become an accredited investor if they have at least Rs 1 crore annual income and a net worth of Rs 5 crore, with at least half in financial assets.

For trusts other than family trusts and corporate entities, a net worth of at least Rs 50 crore is required to qualify as accredited investors. In case of a partnership firm, each partner independently will have to meet the eligibility criteria for accreditation.

What’s the validity of the accreditation certificate?

SEBI said that the accreditation will be valid for one year, if the applicant meets the eligibility criteria for accreditation for the preceding year. The accreditation will be valid for two years if the applicant meets the eligibility criteria in each of the preceding three years.

To avail benefits linked to accreditation, investors will have to submit a copy of the accreditation certificate and an undertaking to the investment provider saying they can bear the financial risks associated with the investment.

Investors will also have the flexibility to stop availing benefits of accreditation subject to certain conditions. For instance, an investor who withdraws consent after availing the benefit of lower ticket size will have to increase the investment to the minimum amount that is stipulated under the applicable regulatory framework, SEBI said.

However, investors in pooled investment products which are launched exclusively for such investors won’t have the flexibility to withdraw their consent.