Markets regulator Securities and Exchange Board of India (SEBI) has introduced the concept of ‘accredited investors’ in the Indian securities market, a move expected to open up a new channel for raising funds.
A person or entity will be identified as an accredited investor on the basis of net worth or income.
Individuals, HUFs, family trusts, sole proprietorships, partnership firms, trusts and body corporates can get accreditation based on financial parameters specified by the regulator, according to a notification dated August 3.
The regulator said that subsidiaries of depositories and stock exchanges will issue an accreditation certificate to such investors.
An individual, Hindu Undivided Family, (HUF), family trust or sole proprietorship, can be an accredited investor 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, Sebi said.
Such entities with a combination of at least Rs 1 crore annual income and a net worth of Rs 5 crore, with at least half in financial assets can also become an accredited investor.
For trusts other than family trusts, a net worth of at least Rs 50 crore would be required to qualify as accredited investors while for corporates, a net worth of Rs 50 crore will be mandatory.
In case of a partnership firm, Sebi said each partner independently will have to meet the eligibility criteria for accreditation.
The regulator said that central as well state governments, funds set up by them, developmental agencies, qualified institutional buyers, Category I FPIs, sovereign wealth funds and multilateral agencies will be accredited investors and may not be required to obtain a certificate of accreditation.
Accredited investors will have the flexibility to participate in investment products with an investment amount lesser than the minimum amount mandated in the Alternative Investment Fund (AIF) norms and Portfolio Management Services (PMS) rules.
Market experts said this new class of investors will now have more latitude in tailoring financial investments in AIFs and PMS through investment advisors in a manner that suits their risk appetite and investment thesis.
AIF for accredited investors, where each investor invests a minimum amount of Rs 70 crore, may avail relaxation from regulatory requirements.
As per the notification, “large value fund” for accredited investors means an AIF or scheme of an AIF in which each investor (other than the manager, sponsor, employees or directors of the AIF or employees or directors of the manager) is an accredited investor and invests at least Rs 70 crore.
With regard to tenure, Sebi said that large value funds for accredited investors may be permitted to extend its tenure beyond two years, subject to terms of the contribution agreement and other fund documents.
It, further, said that large value funds for accredited investors of Category I and II may invest up to 50 per cent of the investable funds in an investee company directly or through investment in the units of other AIFs.
“Large value funds for accredited investors of Category III may invest up to 25 per cent of the investable funds in an investee company directly or through investment in units of other AIF,” Sebi said.
Accredited investors, with a minimum investment of Rs 10 crore with a registered PMS provider, can avail relaxation from regulatory requirement with respect to investment in unlisted securities and can enter into bilaterally negotiated agreements with the PMS provider.
In a separate notification, Sebi said “large value accredited investor” means an accredited investor who has entered into an agreement with the portfolio manager for a minimum investment amount of Rs 10 crore.
According to the regulator, portfolio manager may offer discretionary or non-discretionary or advisory services for investment up to 100 per cent of the assets under management of the such accredited investors in unlisted securities.
This is subject to appropriate disclosures in the disclosure document and the terms agreed between the client and the portfolio manager.
Separately, Sebi has notified the advisory fees to be charged by Investment Advisers (IAs) from its clients, including accredited investors.
In this regard, the regulator has amended AIF, PMS and investment advisers regulations.
The move comes after the watchdog’s board approved a proposal in June to introduce the framework for accredited investors.