Sebi’s decision to adopt the idea of accredited investors will increase the attractiveness of alternative investment funds (AIFs), experts said on Wednesday.
Accredited investors are those who are considered to be well-informed or well-advised about investing. On Tuesday, the Sebi’s board of directors accepted a proposal to establish a framework for accredited investors in India’s securities markets. This follows the regulator’s February publication of a consultation document on the subject.
Individuals, HUFs, family trusts, single proprietorships, partnership firms, trusts, and body corporates may obtain certification based on defined financial requirements and information.
Accreditation certificates will be issued to such investors by eligible subsidiaries of depositories and selected stock exchanges.
Krishna Rath, SEBI RIA and founder of finvestor.in, stated that Sebi’s decision to establish the framework for accredited investors represents a watershed moment for the alternative investing sector. “This move will considerably increase AIF and PMS product involvement,” he added.
Several of the benefits of certification, he believes, should accrue to investors and managers of portfolio management services, alternative investment funds, and investment consulting organisations.
Accredited investor is a globally recognised concept that gives skilled investors greater discretion and agency over their investment decisions.
In India, accredited investors will now have greater flexibility in tailoring financial investments in AIFs, PMS, and through investment advisors to their risk tolerance and investment thesis. Sebi stated that accredited investors will be able to engage in investment products with an investment amount smaller than the minimum required under AIF and Portfolio Managers (PMS) requirements.
AIFs for accredited investors with a minimum investment of Rs 70 crore per investor may be exempt from regulatory restrictions.
Accredited investors who invest a minimum of Rs 10 crore with a registered PMS provider are exempt from regulatory requirements regarding unlisted securities and may enter into bilaterally negotiated agreements with the PMS provider.
Through bilaterally negotiated contractual conditions, accredited investors who are clients of investment advisors will have the flexibility to set the boundaries and modalities of fees due to the investment advisor.
Sebi has agreed to a long-standing industry demand for non-applicability of minimum investment ticket sizes for accredited investors in its AIF and PMS rules, and the necessary adjustments should be implemented soon.
While Sebi should explore lowering the minimum eligibility amount, doing so will enable the much-needed single purpose and other co-investment entities to operate across all investment levels, rather than just the largest, he added.