Market regulator Securities and Exchange Board of India (SEBI) has now simplified the requirements to become an accredited investor in the country. Along with the easing of requirements, SEBI has also extended the validity of any new accreditation certification that would be granted to investors with immediate effect.
As per the revised norms, you can become an accredited investor solely based on your know-your-customer (KYC) data and financial information.
As KYC registration agencies (KRAs) act as accreditation agencies, they can access the KYC documents of applicants available with them and may also access the same from the database of other KRAs, for the purpose of accreditation, as per the revised norms.
In case you are interested in understanding who is an accredited investor and what are the benefits of being one, you have landed at the right place.
Accredited investors
Accredited investors are qualified investors or professional investors, who have an understanding of various financial products and the risks-returns associated with them. They are considered to be capable of dealing in relatively riskier investment products due to their financial capacity and ability to absorb possible losses. The accredited investors, who could be individuals or business institutions, are allowed to deal with capital market products which are not generally available for retail investors.
In order to recognise such investors, financial market regulators around the globe have put in place frameworks to grant them formal status as accredited investors.
Accreditation of investors leads to identifying a class of sophisticated investors who have the ability and willingness to invest in products that are relatively riskier and have minimal regulatory oversight.
Such regulation-light approach also leads to development of highly customised investment products for this class of investors.
Accredited investors get several benefits. Such investors can participate in products with an investment amount lesser than the minimum investment mandated. Lower ticket size enables accredited investors to diversify their investments across multiple instruments.
They also enjoy relaxation from regulatory requirements applicable to investment products such as prudential regulatory norms, investment conditions, filings with SEBI and frequency of audit, valuation and reporting.
Also, there are special investment products that are designed and offered exclusively to accredited investors, keeping in mind the risk-return profile of these investors.
Steps for accreditation of investors
If you are interested in acquiring the status of an accredited investor, here are the steps that you need to follow:
1) Eligibility: You can apply if you are an individual, Hindu-Undivied-Family (HUF), family trust or a sole proprietorship, with an annual income of more than ₹2 crore.
Those with net worth of ₹7.5 crore, out of which at least ₹3.75 crore is in the form of financial assets are eligible too.
Investors with an annual income of more than ₹1 crore along with net worth of more than ₹5 crore, out of which at least ₹2.5 crore is in the form of financial assets can also apply.
Partnership firms, along with trusts and body corporates with net worth over ₹50 crore are eligible.
2) The applicant will make an application to one of the accreditation agencies for this purpose, in the manner prescribed by them.
3) For the purpose of verification of income and net worth, applicants will furnish a self-certified copy of their Income-Tax Return (ITR) for the previous financial year.
4) In case of accreditation of individual investors, HUFs and sole proprietorships, the value of the primary residence of the individual, Karta of HUF and the sole proprietor, respectively, will not be considered for calculation of net worth.
5) In case of body corporates, either the audited accounts (statutory audit) of the financial year preceding the one in which application is being made, or more recent audited financials (audited by the statutory auditor) will be considered for assessment of eligibility as accredited investor.
6) Similarly, for trusts, the calculation of assets under management will be based on the valuation data as included in the statutory audit report of the preceding financial year or in the more recent audited accounts (audited by the statutory auditor).
7) On successful verification of information, the accreditation agency will issue an accreditation certificate to each accredited investor, which specifies the name and permanent account number (PAN) of the applicant, date of accreditation validity of accreditation and a unique accreditation number.
Validity of certificate
- If the applicant meets the eligibility criteria for preceding one financial year, the accreditation certificate issued will be valid for a period of two years from the date of issuance (earlier the accreditation was valid for one year).
- If the applicant meets the eligibility criteria in each of the preceding two financial years, the accreditation certificate issued will be valid for a period of three years from the date of issuance (earlier the accreditation was valid for maximum two years).
- If the applicant is a newly incorporated entity, which does not have financial information for the preceding financial year, but meets the applicable net worth criteria, the accreditation certificate issued will be valid for a period of two years.
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