Markets regulator Sebi on Thursday proposed widening the pool of accredited investors by allowing individuals with securities market assets of Rs 5 crore and body corporates with such assets of Rs 20 crore to qualify, alongside the existing income and net-worth criteria.
The proposal is aimed at widening the pool of investors eligible for accredited investor status and, consequently, encouraging greater participation in alternative investment funds (AIFs), Sebi said in its consultation paper.
This one proposal itself has the potential to expand the pool of eligible accredited Investors to around 4 lakh, compared to the existing AIF investor base of around 1 lakh, according to Sebi.
Separately, in a statement, Sebi said it has proposed “to introduce securities market assets (with an eligibility threshold of Rs 5 crore for individuals and Rs 20 crore for body corporates) as an additional eligibility criterion for accreditation, alongside the existing income and net-worth based criteria.”
Sebi said the proposed threshold would ensure that eligible investors have sufficient financial wherewithal and that a substantial population of them has the willingness to take risk, as indicated by an analysis of securities-market holdings and the percentage of options traders.
At present, individuals, Hindu Undivided Families, family trusts and sole proprietorships qualify as accredited investors if they meet any of the prescribed income or net-worth criteria. These include annual income of at least Rs 2 crore; net worth of at least Rs 7.5 crore, of which at least Rs 3.75 crore is in financial assets; or annual income of at least Rs 1 crore and a net worth of at least Rs 5 crore, with at least Rs 2.5 crore in financial assets.
Under the proposed framework, securities-market assets that could be counted would include equity and debt instruments, REITs and InvITs, AIF units and other securities held in dematerialised form.
Mutual fund investments held through folios, futures open-interest positions, unlisted securities held in dematerialised form and overseas securities-market investments would also qualify.
Other proposals include simplifying the onboarding process through manager-led accreditation (which will be valid at a group level), in addition to the existing Accreditation Agency route and streamlining the validity of accreditation to 3 years on the basis of the latest documents.
Sebi has also proposed allowing investment managers to determine and record an investor’s accredited status while onboarding them into an investment product. Such accreditation could be recognised at the group-entity level across investment vehicles including AIFs, specialised investment funds (SIFs) and portfolio management services (PMS).
For verification, investors would be required to furnish the latest income-tax return for income-based eligibility. Net worth could be established through a certificate from a practising chartered accountant not older than six months.
For securities-market assets, investors could submit an eCAS summary statement generated by depositories or a broker statement not older than six months, or a certificate from a practising chartered accountant.
Sebi has also proposed that all Persons Resident Outside India (PROIs), including foreign portfolio investors, may be treated as deemed accredited investors under the framework.
Since its introduction, accreditation has assumed increasing significance within the AIF ecosystem, with its benefits now extending across AIFs, Specialised Investment Funds (SIFs) of Mutual Funds, Portfolio Management Services (PMS) and Angel Funds.
The Securities and Exchange Board of India (Sebi) has sought public comments till September 3 on the proposals.
