Accredited Investor

Definition: An accredited investor can demonstrate their expertise in financial markets to gain access to portfolios of securities that are usually exclusively invested in or licensed by regulated financial institutions. Usually, a company or investment fund will carry out due diligence on its accredited investors as part of this process.

An accredited investor needs to make sure that he or she is doing everything legally possible to ensure that whatever he or she invests in is something other than blue skies from heaven, or something that has the edge over anything else out there in the financial markets when it comes to potential returns.

An accredited investor is someone who has proven they have enough capital and resources to invest in a particular security or commodity. An accredited investor’s name is verified by the Non-State Actors Forum, an independent, multilateral body that governs standardization in the financial sector. In addition, there are clear regulations and passport standards that need to be adhered to for accredited investors to trade securities worldwide.

An accredited investor is somebody who cannot buy (or sell) the same security or product without disclosing his or her ownership interest in the security. The rules surrounding accredited investment are typically much stricter, and many require an investment of at least 5% of an individual’s annual income. 

How can you become an Accredited Investor?

  • You must have a minimum net worth, which is the difference between the total money you have in your bank account and what you owe in debt (for example, mortgage, car payments, credit card debt), and invest that extra money into the target securities.
  • An accredited investor must have at least Rs.25 crore in the bank at any point in time, having a minimum holding period (generally 3 months), paying regular net worth tax, and providing certain disclosure documents to the government agencies such as ED, Ministry of Corporate Affairs, etc.
  • Apart from having a minimum capital of Rs.25 crore or an above among eligible shareholders, these entities must invest at least 50% of their net worth in an Indirect Regulation Capital instrument where the maximum capital is Rs.50 crore and Rs.350 crore (whichever is lower).

Some of the issues accredited investors will face are dependent on where you are placing assets; states require more AML/CFT compliance, while offshore investors have more freedom in managing their investments. Non-US accredited investors should understand securities laws governing corporates in other countries

With the passing of credit cards in recent years, accredited investors have been increasingly expanding their roles to oversee companies’ portfolios, including private companies and funds.