· AIF Regulations were amended to introduce a framework for accredited investors in August 2021 via the SEBI (Alternative Investment Funds) (Third Amendment) Regulations, 2012.
· Investors into AIF (other than Angel Funds) have to bring in Rs. 1 crore as contribution to the Fund. This amendment relaxes the limit for accredited investors.
· Investment Limit – There is no minimum or maximum prescribed limit for investment by an accredited investor. It will usually depend on each the limits and caps set by each investment vehicle.
· SEBI noted that the concept of accredited investors exists in other jurisdictions and such investors are considered capable of dealing in relatively riskier investment products due to their financial capacity.
· In jurisdictions which recognize accredited investors, it is considered that accredited investors are sophisticated enough to not require extensive regulatory oversight.
· In India, the eligibility criteria to be recognised as an accredited investor –
(i) Individuals, HUFs, sole proprietors, and family trusts with:
o Annual income of INR 2 crore or more; OR
o Net worth of INR 7.5 crore, of which at least 3.75 crore shall be in the form of financial assets; OR
o Annual income of INR 1 crore or more + net worth of INR 5 crore or more, of which at least INR 2.5 crore has to be in financial assets.
(ii) Partnership firms – each of the partners shall independently meet the eligibility criteria mentioned in point (i) above.
(iii) Trusts (other than family trusts) – minimum net worth of INR 50 crore.
(iv) Body corporates – minimum net worth of INR 50 crore.
Central and State Government, Developmental Agencies set up under the aegis of Government(s), Funds set up by the government, Qualified Institutional Buyers as defined under the SEBI ICDR Regulations 2018, Category I Foreign Portfolio Investors, sovereign wealth funds, and multilateral agencies shall be deemed to be accredited investors.
· In India, there is a process to be become an Accredited Investor
o The prospective accredited investor should apply to an Accreditation Agency.
o Accreditation Agency is either a subsidiary of a recognized stock exchange or a subsidiary of a depository.
o At present, there are two recognized Accreditation Agencies – (i) BSE Administration and Supervision Limited (BASL), a wholly owned subsidiary of BSE Limited; and (ii) CDSL Ventures Limited, a wholly owned subsidiary of CDSL.
o The Accreditation Agency collects and verifies if the investor is a fit and proper person (for e.g., no prior convictions, no wilful default, etc.) and issues an Accreditation Certificate, with an Accreditation Number.
· Accredited Investor concept in US and how it stacks up to the Indian regulation.
o The Securities and Exchange Commission (SEC) in the US, specifies the following eligibility criteria for being an accredited investor:
§ Income: Annual income of at least USD 200,000 in the past 2 years or joint income with a spouse of at least USD 300,000 for those years, including a reasonable expectation to sustain that level of income in the current year.
§ Net Worth: Net worth of at least USD 1 million or more (individually or jointly with spouse), excluding the value of the individual’s primary residence.
§ Professional: Is a “knowledgeable employee” of a private fund or holds certain licenses/credentials such as Series 7, Series 65, and Series 82 license.
o Accreditation Process
§ As opposed to India, the SEC does not prescribe any formal verification/accreditation process.
§ It is the responsibility of the investment vehicle to conduct its own due diligence in order to verify an investor as an accredited investor.
§ Each investment vehicle will have its own process of verification, however, generally the investor will be given a questionnaire to fill to determine whether they qualify as an accredited investor.
§ Along with the questionnaire, the investor would also be required to provide certain documents such as tax returns, financial statements, credit reports, proof of employment, etc.