Market regulator Sebi's move gives fillip to accredited investors

Number of such investors surged 75% in the last month since the onboarding process was simplified

The number of accredited investors — a certification provided to those who can bear higher financial risk — have surged by 75 per cent in the last one month since the market regulator simplified the onboarding process, said people in the know.

On December 18, the Securities and Exchange Board of India (Sebi) had simplified the procedure for accredited investor certification.

Before the changes, there were only around 200 such accredited investors, which surged to over 350 this week. The number — which had remained stagnant for several years — is expected to grow further.

Industry experts believe that for riskier and niche products like alternative investment funds (AIFs), there is a need to give impetus to accreditation to avoid mis-selling. 

In the circular, Sebi had allowed accreditation agencies to grant certification solely based on know-your-customer (KYC) and financial information of the applicants.

With this, KYC registration agencies (KRAs), which are also accreditation agencies, can now access KYC documents from the database for this certification. Sebi has further extended the validity of the certification.

The certification for those who fulfil the eligibility criteria for two preceding financial years will not be valid for three years instead of two years.

The market regulator had also removed the requirement of certain documents and additional proofs.

Amid the regulatory push for such certification, the International Financial Services Centres Authority (IFSCA) has also issued a framework on it defining eligibility and modalities.

Individuals, who have an annual gross income of at least $200,000 or those with net assets of at least $1 million, will be eligible for certification in IFSCA.
 

For trusts and partnership firms, all beneficiaries or all the partners must meet the criteria individually or the total net worth should be $5 million.

Sovereign wealth funds, family investment funds, pension funds, provident funds, and several other such funds set up in IFSC, India, or foreign jurisdictions will be deemed to be accredited investors, with certain conditions.

This move will facilitate distribution of a wider bouquet of products and services to such investors.

According to industry officials, the number of investors in AIFs has surged multi-fold over the last five years. The exact number of investors is not public.

As of March 2023, there were 50 schemes of AIFs in Gift City IFSC, which raised commitments worth $13 billion.

New norms

Accredited investors have more flexibility in niche products like AIFs

The certification is for investors who meet defined criteria on income, net worth

Considered to have capacity to bear higher risks

Sebi simplified norms on accreditation in December, extended validity

IFSCA has also allowed accreditation to boost distribution of wider bouquet of financial products