Reluctance, lack of awareness and vested business interests limit growth of accredited investors as only around 200 register in 4 yrs

Globally wealthy investors need to be accredited to access products like AIFs, and a self-declaration is good enough.

It has been nearly four years since the Securities and Exchange Board of India (SEBI) introduced the category of accredited investors, but till date only around 200 entities have opted for registration in the category.

Market participants attribute this to a combination of factors including lack of awareness, lengthy approvals and the reluctance among individuals especially from the HNI and business owner background to disclose their key financial information.

Sources further told Moneycontrol that market intermediaries including PMS and AIF firms are also not encouraging pushing accreditation hard enough because it threatens their own business and bottom line. Reason being, accredited investors are allowed to bypass the minimum ticket size for PMS and AIFs.

Simply put, while the minimum ticket size for an ordinary investor is pegged at Rs 1 crore for an AIF, accredited investors can come in with a much lower amount as well.

Also read AIF body to propose flexible strategies for schemes aimed at accredited investors

Incidentally, globally wealthy investors need to be accredited to access products like AIFs, and a self-declaration is good enough.

According to SEBI rules, to qualify as an accredited investor in India, one must meet either one of the following requirements: either the investor has an annual income of Rs 2 crore or a net worth of Rs 7.5 crore or more, with at least Rs 3.75 crore in financial assets. One can also be eligible with an annual income of Rs 1 core and net worth of Rs 5 crore with Rs 2.5 crore in financial assets.

Meanwhile, the cost of getting the tag of an accredited investor is Rs 12,000 every two years and while it is a negligible amount for rich individuals, many just view it as another recurring expense since they can invest without the tag as well.

"Many investors overlook its value simply because they aren’t aware of the benefits, making it seem like just another recurring expense," says Srikanth Subramanian, co-founder and CEO of Ionic Wealth.

"Currently, digital integration via an AMC application is not allowed to start the accreditation process. So applicants must manually upload documents to CVL (CDSL Ventures Limited, a subsidiary of CDSL) website and wait a couple of days for approval, and then pay the fee. However, integrating the CVL API into the respective apps would streamline the process, enabling instant approvals and seamless payments," added Srikanth. SEBI has granted recognition to CVL as an accreditation agency.

While some say that the accreditation process is lengthy, a section of market participants believes that many do not even want to opt for accreditation. Business owners, HNIs, and family offices may be hesitant to disclose their net worth or annual income in order to get accreditation, said a person on the condition of anonymity.

The GIFT way
Getting an accredited investor certificate makes much more sense in an outbound fund, say experts. The Liberalized Investment Scheme (LRS) limit is $2,50,000 and the minimum ticket size an Indian investor can invest in a GIFT City fund is $1,50,000.

"In this case, an investor will end up allocating 60 percent of the annual limit to a single fund, which is not ideal as it will lead to concentrated portfolio," said Pramod Gubbi, Co-founder, Marcellus Investment Managers. On the contrary, if the investor is accredited, he can invest much lower than the $1,50,000 limit in a GIFT City fund.

In December, SEBI's whole-time member Ananth Narayan emphasised that the AIF industry should move to an accredited investor regime, which could pave the way for light-touch regulations. He added that one of the key reasons for the industry's reluctance to adopt to the accredited investors regime was high costs. However, he added, "Once a reasonable number of investors come in, the costs will naturally decrease."

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