Capital market regulator Sebi is considering ways to encourage high networth individuals (HNI) to register as accredited investors, people familiar with the development told Moneycontrol, adding that the watchdog plans on creating awareness about the benefits of accreditation and may look to simplify the process.
If required, the regulator may also suggest concerned agencies to charge lesser fees for such registrations.
An email sent to Sebi seeking comments on the proposals did not elicit any response.
Currently, there are around 200 accredited investors - a number that is considered too less and not at all encouraging - compared with the number of HNI investors in the capital market. Nearly four years after the regulations were framed, not many investors have come forward to seek this accreditation. The regulator had previously formed a working group on Ease of Doing Business for Alternative Investment Funds (AIFs), which suggested several measures in order to simplify the process for accreditation of investors.
Sebi may soon come up with an implementation plan on some of the proposals, suggested by expert working group, it is learnt.
What is the Likely Plan?
As per sources, Sebi may consider registration through the account aggregator mode, which will make it easier to verify and register the investors quickly. Suggestions have also been made to make onboarding digital, linking through existing data like mutual funds, demat account details, etc. Sebi may also encourage more entities to join as accreditation agencies.
Allowing accredited investors to join large value funds may also be one of the ideas before the regulator, Moneycontrol has learnt. Another suggestion is if related parties, relatives, etc can cumulatively be allowed to qualify as accredited investor. Sebi may also suggest the accredited investor agencies to reduce registration and processing charges, if the numbers begin to increase. Currently, the agencies charge around Rs 12,000 for processing and issuing an accreditation certificate for two years.
Wealth advisors are of the view that unless investors see the real benefits of being an accredited investor, it’s unlikely that the numbers will go up. In most of the larger economies, the accredited investor framework is based on self-declaration basis and minimum documentation is required. However, there are concerns of misuse if such lenient regulation is allowed in India. This may be the reason for Sebi’s caution in relaxing the norms. Read More
Benefits of Being an Accredited Investor
Accredited investors get exclusive investment opportunities, unlike retail investors, such as in private placements, AIF, venture capital, private equity and hedge funds, etc. They are also allowed to invest with a lower ticket size in AIFs and portfolio management services (PMS). For AIFs, the minimum prescribed threshold for investment is Rs 1 crore, and Rs 50 lakh for PMS. Read More
Criteria to be an Accredited Investor
Individuals, HUFs, family trusts and sole proprietorships, who meet either of the two main financial criteria are eligible. One, annual income of more than Rs 2 crore or networth of Rs 7.5 crore, out of which at least Rs 3.75 crore should be in financial assets. Or, two, annual income of Rs 1 crore or above with a networth of over Rs 5 crore, out of which at least Rs 2.5 crore should be in financial assets.
The value of the primary residence of the individual, karta of HUF, or the sole proprietor is not considered for the calculation of the networth.
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