The Securities and Exchange Board of India (“SEBI”) has made amendments to certain regulations to recognise a new class of investors into the securities market called ‘accredited investors’. These are well informed or well advised investors whose financial capacity gives them an ability to absorb loss and thus relatively higher risk products may also be suitable for such investors. Accredited investors have been granted exemptions from the provisions of certain SEBI regulations and certain separate thresholds for investments have been prescribed for them.
Who are accredited investors?
• The amendment to the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) sets out the criteria for who qualifies as an accredited investor. The criteria are based on financial requirements, such as annual income, net-worth of the individual/entity, etc.
• Each such qualifying individual/entity is required to obtain a certificate of accreditation from an ‘accredited agency’. This agency shall be a subsidiary of (a) a recognised stock exchange, (b) depository or any other entity specified by SEBI.
• Developmental agencies set up by the Central or State Governments, funds set up by the Central or State Governments, qualified institutional buyers under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, category I foreign portfolio investors, sovereign wealth funds and multilateral agencies shall be deemed to be ‘accredited investors’ and do not require accreditation.
These amendments have bestowed various benefits on accredited investors, an overview of which are as follows:
• Restriction on AIFs accepting not less than an INR 1 crore investment from an investor does not apply to an accredited investor.
• SEBI has introduced a concept of ‘large value fund for accredited investors’ (“LVF”) being AIFs or schemes where each investor (not being the manager, sponsor, employee/ director of the AIF, employee/ director of the manager) is an accredited investor, investing not less than INR 70 crore.
• LVFs have been given benefits such as right to extension of tenure of the AIF by a period exceeding 2 years (subject to the contribution agreement, fund documents and SEBI requirements), relaxation of the requirement to launching of scheme, subject to filing of placement memorandum with SEBI at least 30 days prior and incorporation of comments of SEBI, if any.
• Investment ceilings for Category I and II LVFs vis-à-vis an investee company have been relaxed from 25% of investable funds to 50% of the investable funds.
• Investment ceiling for Category III LVFs vis-à-vis an investee company have also been relaxed from 10% of investable funds to 20% of investable funds.
SEBI (Portfolio Managers) Regulations 2020:
• A “large value accredited investor” under the PMS Regulations has been defined as an accredited investor who has entered into an agreement with the portfolio manager (“PM”) for a minimum investment amount of INR 10 crore.
• The regulatory requirements of information to be set out in the portfolio management services agreement do not apply to large value accredited investors.
• Restriction on minimum investment of INR 50 lakhs per client shall not apply to an accredited investor, subject to appropriate disclosures in the disclosure document.
• Portfolio manager can offer discretionary/ non-discretionary/ advisory services for investment of up to 100% of the assets under management of large value accredited investors in unlisted securities, subject to appropriate disclosures. This is in contrast to existing provision of a PM offering non-discretionary or advisory services to clients up to only 25% of the assets under management of such clients in unlisted securities.
These amendments have been brought about by SEBI on 3rd August 2021. They have come in the light of the Consultation Paper on the introduction of the concept of Accredited Investors dated 24th February 2021 which was floated by SEBI for public comments.
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