Sebi proposes easier accreditation, wider pool of accredited investors

The Securities and Exchange Board of India (Sebi) is proposing to make it easier and cheaper for investors to qualify as accredited investors (AIs), while significantly widening the pool of investors eligible for the status.

In a consultation paper issued on Thursday, the market regulator proposed allowing investment managers to accredit investors as part of the onboarding process, extending the validity of accreditation and introducing securities-market assets as an alternative eligibility criterion.

The proposals follow feedback from industry associations, fund managers, intermediaries and other market participants on the exhaustive accreditation process, limited validity and high cost of certification, Sebi said.

The proposals are open for comments until 3 September.

Easier accreditation

Accredited investors are individuals or entities deemed financially sophisticated enough to take on higher-risk investments. Individuals qualify with an annual income of at least ₹2 crore or a net worth of ₹7.5 crore, with at least half in financial assets, among other criteria. Companies and trusts require a net worth of at least ₹50 crore.

Mint reported in May that alternative investment funds (AIFs) had represented to Sebi seeking an easier accreditation process, citing excessive paperwork and short validity.

Under Sebi’s proposal, investment managers could deem an investor accredited as part of the onboarding process. The existing route through accreditation agencies would continue, giving investors a choice between the two mechanisms.

For products of the same manager, accreditation could remain valid for three years from the date of eligibility assessment. Where an investor onboards with different managers, accreditation would be undertaken each time. Sebi has proposed safeguards for manager-led accreditation, including a formal accreditation policy, record maintenance, independent oversight and an accountability framework.

Currently, accreditation is handled through Sebi-recognized agencies such as NSDL Database Management Ltd (NDML) and CDSL Ventures Ltd (CVL). Applicants must submit PAN, Aadhaar, income tax returns for the past three financial years, and a chartered accountant’s certificate confirming income and liquid net worth.

For individuals, a three-year certificate costs ₹9,500; for trusts and corporates, ₹28,500, excluding taxes, along with a processing fee of ₹5,000. The same charges apply at renewal.

Accreditation is currently valid for one year if eligibility is met for the preceding year, and two years if met consistently for the past three years, after which investors must reapply with full documentation and fees.

Wider eligibility

Sebi has also proposed adding securities-market assets as an alternative eligibility criterion. Individuals holding at least ₹5 crore in such assets could qualify as accredited investors, while the proposed threshold for body corporates is ₹20 crore.

Eligible assets could include equity and debt instruments, real estate investment trusts (Reits) and infrastructure investment trusts (InvITs), AIF units, mutual funds, futures open-interest positions, unlisted securities in demat form and overseas securities-market investments.

Sebi said a threshold based on securities holdings could provide a measure of both an investor’s familiarity with financial products and appetite for risk. The proposed route could also reduce reliance on manually generated documentation by using digital records from depositories and brokers.

The paper estimates that, based on available data as of 30 April, around 370,000 investors could qualify under the proposed securities-asset criterion, compared with around 96,000 current AIF investors.

The regulator has also proposed expanding deemed accredited investor status to all Persons Resident Outside India (PROIs), including all foreign portfolio investors, as defined under the Foreign Exchange Management Act. It said this could facilitate foreign capital inflows and deepen the pool of risk capital available to Indian markets.

Sebi is also seeking views on allowing a limited liability partnership (LLP) to qualify as an accredited investor where each of its partners independently qualifies, subject to safeguards.

It is also considering whether a wholly owned subsidiary could qualify if its parent company meets the prescribed net-worth requirement, while acknowledging that the two are separate legal entities.