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The concept of Accredited Investors is not new. At the global level, Accredited Investors are investors who are financially sophisticated and have a reduced need for the protection provided by regulatory disclosure filings. It has emerged in asset management jurisdictions of countries like the US, Singapore, and Hong Kong, where regulatory norms are relaxed for a class of sophisticated investors (for example, “Qualified Clients” in the US) due to their higher industry knowledge and larger appetite for risk.
In India, the Securities and Exchange Board of India (SEBI) approved the framework for Accredited Investors for the Indian securities market in June 2021. The market regulator aimed to create lighter regulations for a class of investors, who are equipped with good knowledge about the risk and returns of financial products — mainly the complex ones such as alternative investment funds (AIFs) and portfolio management services (PMS) — and have the ability to make informed decisions about their investments.
SEBI also allowed Accredited Investors to invest with ticket sizes that are lower than the stipulated minimum amount as per the regulations in respective financial products. Eventually, SEBI came up with detailed modalities of the framework for Accredited Investors framework and amended the regulations for AIFs, PMS, and Investment Advisers accordingly.
Who all can be Accredited Investors?
* Value of the primary residence of the individual, Karta of HUF and the Sole Proprietor, respectively, shall not be considered for NW calculation
Note: If investments are jointly held and the holders are parent and children at least one member must fulfil the eligibility criteria to qualify as Accredited Investors. If the joint holders are spouses their combined income/net worth will be considered.
Who will provide the certification for Accredited Investors?
Certificates for Accredited Investors would be provided by Accreditation Agencies, which can be subsidiaries of stock exchanges or depositories (National Securities Depository Limited, NSDL, or Central Depository Services Limited, CDSL) or any other institution that meets the eligibility criteria. For the subsidiaries to qualify as Accreditation Agencies, the stock exchanges should meet a few conditions like minimum of 20 years of presence in the Indian securities market, an NW of at least INR 200 crores, presence of nationwide terminals, etc.
As of date, there are three entities recognised by SEBI as Accreditation Agencies:
- BSE Administration & Supervision Ltd (wholly owned subsidiary of BSE Ltd)
- CDSL Ventures Limited (wholly owned subsidiary of CDSL)
- NSDL Database Management Ltd (wholly owned subsidiary of NSDL)
- A unique accreditation number
- Name of the accreditation agency
- PAN of the applicant
- Validity of accreditation**
- Copies of Income Tax Return(s) or ITR Acknowledgement (Only in case of individuals/HUF/Family Trust/Sole Proprietorship), or;
- Copies of audited Financial Statements, or;
- Copies of Audited Financial Statements prepared by the statutory auditor for the current financial Year (Only in case the entity is incorporated in the same financial Year), or;
- Net worth Certificate from practicing chartered accountant (The latest net-worth certificate shall not be older than 6 months).
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