The recent proposal by The Security and Exchange Board of India (SEBI) to introduce a new investor category, called ‘Accredited Investors’, in the securities market has drawn much attention. Established in 1992, SEBI is a statutory body that regulates the Indian securities market. Its main roles include protecting investors’ interests and maintaining a fair and transparent securities market. This proposal aims to offer individual investors Similar privileges currently enjoyed by Qualified Institutional Buyers (QIBs).
Understanding Qualified Institutional Buyers
A recognizable entity in the Indian securities market is that of the Qualified Institutional Buyers (QIBs). These include bodies such as mutual funds, insurance companies, and foreign portfolio investors. Their status, due to their expertise and financial strength, allows them greater access to the capital market. However, individual investors are not accorded the same status, an issue that the concept of accredited investors seeks to address.
The Concept of Accredited Investors
Accredited investors, also known as qualified or professional investors, are individuals who exhibit a deep understanding of financial products, including the associated risks and returns. These investors are expected to make well-informed investment decisions and are acknowledged by numerous securities and financial market regulators worldwide. Accredited investors are typically allowed to trade securities that may not be registered with financial authorities. To gain this exclusive access, they need to meet certain prerequisites concerning income, net worth, asset size, governance status, or professional experience.
SEBI’s Proposal for Accredited Investors
In its plan to introduce accredited investors, SEBI lays out eligibility criteria applicable to both Indian residents and non-residents alike, as well as foreign entities. The accreditation, once granted, is valid for one year. Moreover, the accreditation process will be managed by ‘Accreditation Agencies’ which could be market infrastructure institutions or their subsidiaries.
Implications of the Accredited Investor Concept
The introduction of the accredited investor concept brings potential advantages for both investors and financial product or service providers. For instance, it provides flexibility in terms of minimum investment amount. Furthermore, it offers relaxation in regulatory requirements, thereby easing the process of participation in the securities market. Most importantly, it opens doors to products or services that are exclusively offered to accredited investors, enhancing their portfolio and investment opportunities.
