Sebi’s accredited investor regime has few takers

Sebi’s accredited investor regime has few takers

The accredited investor regime, introduced by the Securities and Exchange Board of India in August 2021, has failed to take off, with only 200-odd investors getting accredited so far, according to people in the know. Industry observers believe that onerous documentation and opaque rules are the fundamental constraints and Sebi may soon relook at the existing process.

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For AIFs, this could mean an investment that is lower than Rs 1 crore. Further, an AIF for accredited investors, where each investor invests at least Rs 70 crore, may avail of regulatory relaxations.

“A large number of investors can qualify for accreditation but the current process is fundamentally broken and the cost and compliance burden is so high that there have been few takers for it so far,” said Siddarth Pai, Founder, 3one4 Capital.

According to Pai, the online system does not accept applications and one has to go to the offices of agencies to get the work done. Professional firms are charging a significant sum to get the accreditation done. Globally, an individual can get accredited through self declaration and self attestation or through a CPA, lawyer or a notary. The accreditation lasts until another declaration in made.

“In India, the fee is Rs 15,000 for the certification which lasts for a year. Accreditation is an acknowledgement that an investor is sophisticated and has a financial net worth to take additional risk within a light-touch regulatory framework. In case of any false declaration, the investor alone suffers. So there is no incentive to lie,” he said.

A person or entity is identified as an accredited investor on the basis of net worth or income.

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“The process is not time-bound and the documentation requirement is not clear even for straightforward cases. The regulator has given the overarching framework but hasn’t gone into the details of saying how the conditions ought to be met. This is where a common-sense approach to clearing applications is required,” said Divaspati Singh, partner, Khaitan & Co.

The agencies have their own documentation requirements for now. If it’s an individual, an asset or income test is required. If it’s a corporate entity, a certificate by a chartered accountant serves the purpose, said experts.

“Today, if I have a $7-billion fund which has a commitment of $2 billion, giving the nod for accreditation should be a no-brainer kind of exercise. But that application is stuck for seven months,” said an industry official. “A foreign investor, overseas fund or a sovereign wealth fund may not be able to meet the requirements. A newly-formed entity which may not have a banking record for a year or any income but has sufficient assets may not qualify.”

Individuals, HUFs, family trusts and sole proprietorships, with an annual income of Rs 2 crore or a net worth of Rs 7.5 crore, out of which at least Rs 3.75 crore is in the form of financial assets, or an annual income of Rs 1 crore plus a net worth of at least Rs 5 crore, out of which at least Rs 2.5 crore is in the form of financial assets, are eligible to be considered as accredited investors. Partnership firms, body corporates, and foreign investors have other eligibility criteria.