Sebi moots introduction of accredited investor concept; floats consultation paper

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February 24, 2021 10:32 PM

Sebi noted that accredited investors, also called qualified investors or professional investors, are those who have an understanding of various financial products and the risks and returns associated with them.

Sebi moots introduction of accredited investor concept; floats consultation paperWhile proposing a framework for accredited investors, Sebi laid out eligibility criteria for both Indian and non-resident Indians and foreign entities.

Regulator Sebi on Wednesday sought comments on the proposal to introduce the concept of “accredited investors” in the Indian securities market.

The comments can be sent to the regulator in a prescribed format latest by March 18, 2021, Sebi said in a consultation paper.

Sebi noted that accredited investors, also called qualified investors or professional investors, are those who have an understanding of various financial products and the risks and returns associated with them.

They are able to take informed decisions regarding their investments and are recognised by many securities and financial market regulators around the globe.

The accredited investor concept may offer benefits to investors and financial product/service providers, such as flexibility in minimum investment amount, flexibility and relaxation in regulatory requirements and access to products/ services offered exclusively to accredited investors.

While proposing a framework for accredited investors, Sebi laid out eligibility criteria for both Indian and non-resident Indians and foreign entities.

For Indian individuals, Hindu Undivided Families (HUFs) and Family Trusts, Sebi proposed an annual income of over or equal to Rs 2 crore or net worth over or equal to Rs 7.5 crore with not less than Rs 3.75 crore of financial assets.

Alternatively, such entities with an annual income above or over Rs 1 crore besides net worth higher or equal than Rs 5 crore with not less than Rs 2.5 crore of financial assets may also be eligible.

For trusts and body corporates, proposed asset under management (AUM) and net worth, respectively, is equal to higher than Rs 50 crore.

For NRI and foreign individuals and family trusts, Sebi proposed an annual income of over or equal to USD 3 lakh or net worth over or equal to USD 1 million with not less than USD 5 lakh of financial assets.

These entities with annual income above or over USD 1.5 lakh besides net worth higher or equal than USD 7.5 lakh with not less than USD 3.75 lakh of financial assets may also be eligible.

For trusts and body corporates, proposed AUM and net worth, respectively, is equal to or higher than USD 7.5 million.

Besides, multilateral agencies, sovereign wealth funds, international financial institutions and Category-I foreign portfolio investors may also be eligible.

The regulator said the accreditation once granted shall be valid for one year from the date of accreditation.

Sebi also proposed a procedure to avail accredited investor status for specific financial products and services.

It also said the accreditation of investors may be carried out through “Accreditation Agencies” which may be the market infrastructure institutions or their subsidiaries.

Investors such as central and state governments, developmental agencies and funds set up by the government, multilateral agencies, sovereign wealth funds, qualified institutional buyers (QIBs) shall not be required to obtain an accreditation certificate from the accreditation agencies.

Accredited investors participating in existing financial products/ services shall have the option to choose the benefit of lower ticket size or flexible regulatory framework, as may be appropriate for them.

Further, each investment product/ service provider shall have the flexibility to stipulate additional criteria or conditions, over and above the eligibility criteria specified by Sebi, to avail regulatory relaxations.

Sebi also proposed that in addition to participation of accredited investors in existing products/ services, a framework for introduction of new products which are to be offered exclusively to such investors may be enabled.

Sebi noted that a number of investment products/services are regulated by Sebi, such as schemes of mutual funds, real estate investment trust, infrastructure investment trust, alternative investment funds, venture capital funds, portfolio management service, among others.

Often, prospective investors in the securities market are introduced to these investment products/services through distributors or friends/acquaintances.

These introducers or distributors may not always be able to sufficiently educate the prospective investor regarding the risk-return profile of the product/service being marketed or its appropriateness as compared to the financial goals of the prospective investor.

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