The Securities and Exchange Board of India (Sebi) on December 18, 2023 streamlined requirements for accredited investors.
The changes Sebi made aim to ease accreditation procedures, and extend the validity tenure of accreditation certificates. These modifications were made on the basis of feedback gathered from stakeholders seeking greater flexibility in the accreditation process, Sebi said.
An accredited investor, whether an individual or a business entity, can deal with securities not available to the general public or retail investors. This is because accredited investors have financial qualifications, experience, and proven net worth. They can also trade in securities not registered with Sebi, which typically carry higher risk.
Companies seeking capital can directly offer securities to accredited investors through private placements. Sebi doesn’t oversee these transactions, and has also laid down the criteria for accredited investors to make sure that unexperienced retail investors don’t get access to these securities.
An individual, Hindu Undivided Family (HUF), trust or sole proprietorship can be an accredited investor if their annual income is at least Rs 2 crore and net worth is at least Rs 7.50 crore, with at least half of it in financial assets. If their annual income is Rs 1 crore, then their net worth should be Rs 5 core with half of it in financial assets. For trusts other than family trusts or corporates, their net worth should be at least Rs 50 crore.
Under the revised guidelines, accreditation agencies, which are also know-your-customer (KYC) registration agencies (KRAs), may access the KYC documents of applicants available with them in the capacity of KRA, as well as access them from the database of other KRAs, for the purpose of accreditation.
Further, the accreditation decision now will be solely based on an applicant’s KYC and financial information. The agencies will issue certificates based on these data. However, the accreditation certificate comes with a disclaimer saying that market intermediaries and pooled investment vehicles must exercise due diligence when on-boarding accredited investors as clients.
The validity period of the accreditation certificate has been revised as under: For applicants meeting eligibility criteria for the preceding financial year, the accreditation will remain valid for two years, unlike the one-year duration as it was previously. Similarly, those meeting criteria for two consecutive preceding years will receive an accreditation certificate valid for three years, up from the earlier two-year validity.
If the applicant is a newly-incorporated entity, which does not have financial information for the preceding financial year, but meets the applicable net-worth criteria as on the date of application, the certificate issued shall be valid for a period of two years
