Portfolio Management Services
Framework for Accredited Investors
Framework for Accredited Investors under the SEBI (Portfolio Managers) Regulations, 2020.
Background
The concept of a class of investors, variously termed accredited investors, qualified investors or professional investors, who understand financial products and the risks and returns associated with them, and are able to take informed decisions regarding their investments, is recognised globally by many securities and financial market regulators.
Such investors are also considered capable of dealing in relatively riskier investment products, on account of their financial capacity and their ability to absorb possible financial losses. Global regulators have taken the view that these investors are sophisticated enough not to require the full extent of regulatory protection, and that issuers of securities and providers of investment products and services may accordingly be offered a lighter regulatory regime when offering their products and services to them.
SEBI introduced the concept of accredited investors in India with uniform eligibility criteria and a flexible regulatory framework across securities market products and services. The framework as it applies to portfolio management services was introduced by the amendment to the SEBI (Portfolio Managers) Regulations, 2020 notified on August 3, 2021, and by SEBI circular SEBI/HO/IMD/IMD-I/DF9/P/CIR/2021/620 dated August 26, 2021, and was subsequently simplified by SEBI circular SEBI/HO/AFD/PoD1/CIR/2023/189 dated December 18, 2023.
About accredited investors
- Accredited Investor (AI)
- Any person who fulfils the applicable eligibility criteria and is granted a certificate of accreditation by an accreditation agency. The Central Government and the State Governments, developmental agencies set up under the aegis of the Central Government or the State Governments, funds set up by the Central Government or the State Governments, qualified institutional buyers as defined under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, Category I foreign portfolio investors, sovereign wealth funds and multilateral agencies, and any other entity as may be specified by SEBI from time to time, are deemed to be accredited investors and are not required to obtain a certificate of accreditation.
- Accreditation Agency
- A subsidiary of a recognised stock exchange, or a subsidiary of a depository, or any other entity as may be specified by SEBI from time to time. Pursuant to the circular dated December 18, 2023, an accreditation agency that is also a KYC Registration Agency may access the applicant’s KYC documents from its own records or from the database of another KYC Registration Agency, and accreditation is to be granted solely on the basis of the KYC and the financial information of the applicant.
- Large Value Accredited Investor
- In relation to portfolio management services, an accredited investor who has entered into an agreement with the portfolio manager for a minimum investment amount of Rs. 10 crore (regulation 2(1)(la) of the SEBI (Portfolio Managers) Regulations, 2020).
Regulatory concessions available under the SEBI (Portfolio Managers) Regulations, 2020
| Concession | Available to | Source |
|---|---|---|
| The contents of the agreement specified under Schedule IV of the SEBI (Portfolio Managers) Regulations, 2020 do not apply to the agreement between the portfolio manager and the investor. | Large Value Accredited Investor | Proviso to regulation 22(1) |
| The requirement of a minimum investment of Rs. 50 lakh per client does not apply. | Accredited Investor | Second proviso to regulation 23(2) |
| The portfolio manager may offer discretionary, non-discretionary or advisory services for investment of up to one hundred per cent of the assets under management in unlisted securities, subject to the terms agreed between the client and the portfolio manager and to appropriate disclosure. | Large Value Accredited Investor | Regulation 24(4A) |
| The quantum and manner of the exit load applicable to the client under the Regulations do not apply, and are governed instead by bilaterally negotiated contractual terms. | Large Value Accredited Investor | MC ¶6.1.5, deriving from SEBI/HO/IMD/IMD-I DOF1/P/CIR/2021/693 dated December 21, 2021; read with MC ¶6.1.4 |
Eligibility criteria
| Category | Criteria |
|---|---|
| Individual | Annual income ≥ Rs. 2 crore; OR net worth ≥ Rs. 7.5 crore, of which at least Rs. 3.75 crore is in the form of financial assets; OR annual income ≥ Rs. 1 crore and net worth ≥ Rs. 5 crore, of which at least Rs. 2.5 crore is in the form of financial assets. |
| Hindu Undivided Family | As for an individual. |
| Family trust | As for an individual. |
| Sole proprietorship | As for an individual. |
| Body corporate | Net worth ≥ Rs. 50 crore. |
| Trust other than a family trust | Net worth ≥ Rs. 50 crore. |
| Partnership firm set up under the Indian Partnership Act, 1932 | Each partner independently meets the eligibility criteria for accreditation. |
Computation of net worth
| Category | Basis |
|---|---|
| Individual | The value of the primary residence is not considered for the calculation of net worth. |
| Karta of a Hindu Undivided Family | The value of the primary residence is not considered for the calculation of net worth. |
| Sole proprietor | The value of the primary residence is not considered for the calculation of net worth. |
| Body corporate | Net worth = (capital + free reserves) − (accumulated losses + deferred expenditure not written off) |
| Trustee | Net worth = (book value of all assets, other than intangible assets) − (book value of total liabilities) |
Further conditions
- Where investments are held jointly by more than one individual and the joint holders are parent or parents and child or children, at least one person should independently fulfil the eligibility criteria for an accredited investor.
- Where the joint holders are spouses, their combined income or net worth should meet the eligibility criteria for an accredited investor.
- For bodies corporate and trusts, eligibility for accreditation is considered on the basis of financial information as per statutory audit, or financial information as per audit by the statutory auditor as on a date during the financial year in which the application is made, where furnished.
- The eligibility of foreign investors to be accredited is determined on the basis of the rupee equivalent of their income or net worth, as applicable.
Procedure for obtaining accreditation
- The prospective investor makes an application to an accreditation agency in the manner specified by that agency, which will ordinarily require online registration on the agency’s portal, the submission of prescribed details and the upload of self-attested documents, and the payment of the agency’s processing and certification charges.
- Pursuant to the circular dated December 18, 2023, the accreditation agency grants accreditation solely on the basis of the KYC and the financial information of the applicant. Where the accreditation agency is also a KYC Registration Agency, it may access the applicant’s KYC documents from its own records or from the database of another KYC Registration Agency.
- The accreditation agency verifies that, at the time of accreditation, the applicant is fit and proper to participate in the securities market, including the absence of convictions or restraint orders, and that the applicant is not a wilful defaulter.
- The accreditation agency issues a certificate of accreditation. Each certificate carries a unique accreditation number, the name of the accreditation agency, the permanent account number of the applicant and the validity of the accreditation, stating the start date and the end date.
- The certificate carries a statement that the assessment made by the accreditation agency does not in any manner exempt market intermediaries and pooled investment vehicles from carrying out their own due diligence.
Validity of accreditation
| Position at the time of application | Validity of the accreditation |
|---|---|
| Eligibility criteria met for the preceding one year | Two years from the date of issuance of the certificate. |
| Eligibility criteria met for each of the preceding two consecutive years | Three years from the date of issuance of the certificate. |
| Newly incorporated entity meeting the net worth criteria | Two years from the date of issuance of the certificate. |
Source: SEBI/HO/AFD/PoD1/CIR/2023/189 dated December 18, 2023. This supersedes the earlier position, under which accreditation ran for one year where the criteria were met for the preceding year and for two years where they were met consistently for the preceding three years.
Procedure to avail the benefits linked to accreditation
- The prospective investor provides a copy of the accreditation certificate to the Portfolio Manager, together with an undertaking that: the investor wishes to avail the benefits available to accredited investors (the “Consent”); the investor has the ability to bear the financial risk associated with the investment; the investor has the necessary knowledge and means to understand the features of the investment product and the risks associated with it; and the investor is aware that the investment product is meant for accredited investors and may not be subject to the same regulatory oversight as investment products meant for investors other than accredited investors.
- The Portfolio Manager may obtain additional undertakings from the prospective investor.
- The Portfolio Manager independently verifies the status of accreditation of the prospective investor with the concerned accreditation agency.
The agreement between the Portfolio Manager and the client is to provide for:
- the details of the regulatory concessions agreed between the investor and the Portfolio Manager, and the conditions for availing them;
- the consequences, if any, of the investor ceasing to be eligible to be an accredited investor during the tenure of the agreement; and
- the modalities for the withdrawal of the Consent and the consequences of the investor withdrawing the Consent.
Flexibility to withdraw Consent
An investor may withdraw the Consent and discontinue availing the benefits of accreditation, subject to the following.
- An accredited investor who withdraws the Consent after having availed the benefit of a lower ticket size is required to increase the investment to the minimum amount of Rs. 50 lakh applicable to portfolio management services, within the timeframe specified in the client agreement.
- Where an investor who has availed concessions withdraws the Consent before the expiry of the client agreement, investments already made are grandfathered, that is, they continue to be reckoned as investments by an accredited investor. With effect from the date of withdrawal of the Consent, any further transaction is to be in accordance with the applicable regulatory framework.
- The client agreement is to provide for the modalities of withdrawal of the Consent and the consequences of withdrawal.
This page is published for information. It summarises the framework as it stands on 31st October, 2026 and is not a substitute for the SEBI (Portfolio Managers) Regulations, 2020 and the circulars referred to above. Accreditation is granted by the accreditation agency, and not by Flameback Capital Private Limited.
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