Who is an Accredited Investor?

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Accredited Investors have access to exclusive, lucrative deals that most investors miss out on. Accredited investors, recognized by SEBI, are granted this privilege. These investors are granted greater flexibility and privileges due to meeting specific criteria related to asset size, net worth, governance status, or trading experience, gain access to a broad spectrum of investment opportunities, including both regulated and unregulated securities. Their elite status not only opens doors to private deals but also often secures them more favorable terms with registered intermediaries such as Alternative Investment Funds (AIFs), Portfolio Management Services (PMS), and Registered Investment Advisors (RIAs). This exclusivity is coupled with intermediaries expertise to evaluate these unique opportunities.

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In India, the vast majority of securities are regulated by SEBI, offering protection to smaller, retail investors. But accredited investors operate in a different league—they can legally invest in unregulated securities through private placements, and their status often provides them with preferential access and terms when dealing with registered intermediaries. Companies prefer this route when raising capital, as it saves them the time and cost associated with registration. While these methods offer significant rewards, they also demand a thorough understanding of the risks involved. 

 

​Requirements for an Accredited Investor

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1. Eligible Entities for Accredited Investor Status:

   • Individuals, HUFs, Family Trusts, Sole Proprietorships:

     • Annual Income of at least INR 2 Crore; OR

     • Net Worth of at least INR 7.5 Crore, with at least INR 3.75 Crore in financial assets; OR

     • Annual Income of at least INR 1 Crore + Net Worth of at least INR 5 Crore, with at least INR 2.5 Crore in financial assets.
   • Partnership Firms: Eligible if each partner meets the individual criteria.​
   • Trusts (non-family): Must have Assets Under Management (AUM) of INR 50 Crore or more
   • Body Corporates: Net Worth of INR 50 Crore or more
2. Joint Accounts:
   • ​Recognized as Accredited Investor accounts if:​
     • ​Held by parent(s) and child(ren), with at least one member meeting the criteria independently
     • Held by spouses, with combined income/net worth meeting the criteria.
3. Foreign Investors:
   • ​Eligibility determined by the rupee equivalent of their income, net worth, or AUM, supported by documentary proof.​

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Purpose of Accredited Investors

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SEBI's dual mandate is to protect investor interests while also promoting investments that enable companies to raise necessary funds. Typically, companies are required to register their securities with SEBI, a process that ensures oversight but also increases the regulatory burden on the agency. However, accredited investors are allowed to trade in unregistered securities, often at lower prices, because they are willing to accept the higher risks involved and handle direct transactions with companies.

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The role of accredited investors aligns with SEBI's mission by facilitating capital raising without the need for exhaustive regulatory processes. Since these investors are expected to thoroughly analyze the securities and keep relevant depositories and exchanges informed, SEBI permits them to operate in this manner. This arrangement benefits both parties: companies can sell their securities at a lower cost, and SEBI can focus its resources on protecting less experienced investors, all while still encouraging investment activity.

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Benefits of Accredited Investors

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​Access To Exclusive Investment Opportunity: Accredited Investors gain access to investment opportunities that are not readily available to regular investors.

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Diversification: Accredited Investors can diversify their investment portfolio by participating in a wider              range of investment options, asset classes, strategies including high-risk, high-reward differentiated            opportunities.

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Potential For Higher Returns: Exclusive investment opportunities may provide the potential for higher                returns compared to traditional investment avenues available to retail investors.

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How to become an Accredited Investor

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Demat and Trading Account: To trade in the Indian stock market, every entity must open a Demat and               trading account with a stockbroker registered with a depository. The Demat account holds securities in              dematerialized form, while the trading account is used for transactions.

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Apply for Accreditation: After opening the above-mentioned accounts, the next step is to apply for                accredited investor status with stock exchanges or respective depositories. In India, there are three                    agencies, which have the authority to approve such applications. The agencies are​​

• BSE Administration and Supervision Limited (BASL)

• CDSL Ventures Limited (CVL)

• NSDL Database Management Limited (NDML)​

 

​​Documents required are as follows:

• ​Copy of PAN Card.

• Copy of Aadhaar Card or Copy of Valid Passport.

• Income tax return of last 3 financial years

• Certificate from practicing chartered accountant stating total gross income (annually) and liquid net worth as on date of application. Working of Liquid Net worth shall be given as an Annexure to the certificate

 

​The fees for obtaining accreditation is given below​

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​​Note:​

• The same charges would be applicable for renewal.

• The Processing fee would be non-refundable.

• Taxes at applicable rates would be applicable additionally.

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Adherence to Rules: It is important for accredited investors to periodically review the rules and regulations        laid out by SEBI. In case there are any changes, they should immediately adhere to the same. If                          depositories or stock exchanges find that an investor is not following guidelines properly, they can also              revoke the approval. 

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Risk Management: Before granting accreditation, the depository or stock exchange ensures you are                   financially stable enough to handle potential losses from private placements. Maintaining the required               cash and net worth is crucial to keep your license valid.

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