Sebi Overhauls Accredited Investor Rules in India

The Securities and Exchange Board of India (Sebi) has proposed significant changes to simplify and reduce the cost of obtaining accredited investor (AI) status, aiming to considerably expand the pool of eligible participants in India’s financial markets.

A new consultation paper, released on Thursday, outlines initiatives such as allowing investment managers to accredit investors during onboarding, extending the validity period for accreditation, and introducing securities-market assets as a new eligibility pathway.

Addressing Industry Feedback

These proposed reforms directly respond to feedback from various market participants, including industry associations, fund managers, and intermediaries. They collectively highlighted the existing accreditation process as exhaustive, costly, and burdened by limited validity periods.

The public has until September 3 to submit their comments and suggestions on these comprehensive proposals.

Current Framework for Accredited Investors

Accredited investors are typically defined as individuals or entities possessing sufficient financial sophistication to engage in higher-risk investment opportunities.

Currently, an individual must demonstrate an annual income of at least ₹2 crore or possess a net worth of ₹7.5 crore, with at least half of that value held in financial assets, to qualify for this status.

For corporate entities and trusts, the existing criteria mandate a minimum net worth of ₹50 crore to be recognized as an accredited investor.

The current application process requires submitting documents such as PAN, Aadhaar, income tax returns for the past three financial years, and a certificate from a chartered accountant.

The costs associated with this process include ₹9,500 for individuals seeking a three-year certificate and ₹28,500 for trusts and corporates, along with an additional ₹5,000 processing fee, with similar charges applying for renewals.

Accreditation currently remains valid for one year if eligibility is met for the preceding year, or for two years if consistently met over the past three years, after which a complete reapplication is necessary.

Streamlining the Accreditation Process

Under Sebi’s new proposals, investment managers would gain the authority to accredit investors directly during their onboarding procedures. This new manager-led route would operate alongside the existing accreditation options provided by agencies like NSDL Database Management Ltd (NDML) and CDSL Ventures Ltd (CVL).

Accreditation obtained through a specific manager could remain valid for three years, specifically for products managed by that same entity. However, if an investor decides to engage with different managers, a separate accreditation process would be required for each new relationship.

Sebi has also outlined robust safeguards for this manager-led accreditation model, which include maintaining a formal policy, meticulous record-keeping, ensuring independent oversight, and establishing a clear accountability framework.

Expanding Eligibility Pathways

In a move to broaden the investor base, Sebi proposes incorporating securities-market assets as a new criterion for accreditation eligibility. Individuals could qualify if they hold at least ₹5 crore in such assets.

Similarly, body corporates would become eligible if their securities-market assets amount to ₹20 crore or more.

The range of eligible assets for this new pathway encompasses equity and debt instruments, Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), Alternative Investment Fund (AIF) units, mutual funds, futures open-interest positions, and unlisted securities held in dematerialized form.