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The Securities and Exchange Board of India (Sebi) has allowed registered investment advisers (RIAs) to customize fees for accredited investors. To provide a relaxed regulatory framework for sophisticated investors and introduce products designed to meet investor-specific risk profile, Sebi has introduced the concept of “accredited investors" in the Indian securities market.
The concept of a class of investors who have an understanding of various financial products and the risks and returns associated with them, and therefore, can make informed decisions regarding their investments, is recognized by many securities and financial market regulators around the globe. These investors are typically termed accredited investors, qualified investors or professional investors.
The new flexible regulatory framework is expected to result in customized investment products, reduced compliance, better risk labelling (product classification) and increased transparency.
In a notification issued on Tuesday, Sebi said, “It has been decided that in case of accredited investors, the limits and modes of fees payable to the IA shall be governed through bilaterally negotiated contractual terms."
Further, in the case of large value accredited investors, the quantum and manner of exit load applicable to the client of a portfolio manager will be governed through bilaterally negotiated contractual terms. A large value accredited investor means an accredited investor who has entered into an agreement with the portfolio manager for a minimum investment amount of ₹10 crore.
A person or entity are identified as an accredited investor on the basis of net worth or income.
There are three criteria under which individuals, Hindu Undivided Families (HUFs), family trusts and sole proprietorships can get accreditation. These entities or individuals must have annual income of more than ₹2 crore; or, net worth of more than ₹7.5 crore (out of which at least ₹3.75 crore is in the form of financial assets; or, annual income of more than ₹1 crore plus net worth above ₹5 crore (out of which at least ₹2.5 crore is in the form of financial assets).
In case of foreign investors, the eligibility to be accredited is determined on the basis of the rupee equivalent of their income and/ or net worth as applicable.
For accreditation, an individual or entity has to make an application to an accreditation agency, which can be subsidiaries of recognized stock exchanges and depositories.
As per experts, accredited investors have the flexibility to participate in investment products with an investment amount lesser than the minimum amount mandated in the Alternative Investment Fund (AIF) norms and Portfolio Management Services (PMS) rules.
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