Accredited Investors

• 25 Feb 2021

Why in News

Recently, the Security and Exchange Board of India (SEBI) sought comments on the proposal to introduce the concept of ‘Accredited Investors’ in the Indian securities market.

• SEBI is a statutory body established in 1992 in accordance with the provisions of the SEBI Act, 1992. Its headquarters is situated in Mumbai. One of its functions is to protect the interests of investors in securities and to promote and regulate the securities market.

Key Points

• Background:
  
  • Currently, the Indian markets have the concept of Qualified Institutional Buyers (QIBs), which include mutual funds, insurance companies or foreign portfolio investors. These investors enjoy greater market access.
  • However, an individual investor cannot obtain the QIB status. The concept of accredited investor will provide QIB-like status to individual investors.
    
    • Qualified Institutional Buyers: They are those institutional investors who are generally perceived to possess expertise and the financial capacities to evaluate and invest in the capital markets.
• About:
  
  • Accredited investors, also called qualified investors or professional investors, are those who have an understanding of various financial products and the risks and returns associated with them.
  • They are able to make informed decisions regarding their investments and are recognised by many securities and financial market regulators globally.
  • Generally, they are allowed to trade securities that may not be registered with financial authorities.
    
    • They are entitled to this privileged access by satisfying requirements regarding their income, net worth, asset size, governance status or professional experience.
• SEBI’s Plan:
  
  • SEBI has laid out eligibility criteria for both Indian and non-resident Indians and foreign entities.
  • It has allowed the validity of accreditation for a year from the day it is granted.
  • Such accreditation is to be carried out via 'Accreditation Agencies’ which may be the market infrastructure institutions or their subsidiaries.
• Significance:
  
  • The accredited investor concept may offer benefits to investors and financial product/service providers such as:
    
    • Flexibility in minimum investment amount.
    • Flexibility and relaxation in regulatory requirements.
    • Access to products/ services offered exclusively to accredited investors.

Source:TH