Accredited investor refers to individuals, institutions, or corporates with special permissions and with exclusive privileges that are extended to them because of certain factors like their high net worth, market standing or deep trading experience.
Examples of accredited investors are : large institutions like insurance companies, brokers, dealers, family trusts, partnership firms and entities deaing in hedge funds or other sophisticated investments.
Accredited investors are an integral part of the financial and market ecosystem and some key features separate them from regular retail investors:
a. Accredited investors deal in products and investments which are otherwise not available to retail investors, for example, startup funds, unlisted securities etc
b. They can directly invest in unlisted securities and these companies can fulfill their capital requirements without going through the regulatory process laid down by SEBI. It thus saves time and cost for both the parties and is known as private placement.
c. They can invest in a variety of products like private equity funds, venture capital funds, real estate investment funds, angel investments. etc
SEBI’s role is only to identify and register eligible investors as Accredited Investors, as per certain criteria. The investors can then make their own investment choices.
Apart from high networth and experience in stock markets, these factors are required to becom an accredited onvestor:
a. Financial stability – Since investment products can be highly volatile, financial stability of accredited investors is of utmost importance. This is beneficial for accredited investors and the entities offering them products and investment opportunities.
b. Risk accreditation – Before getting registered as an accredited investor, a proper risk assessment ensures that any investment related risk is minimised. This accreditation is time bound and generally granted for a period of three years.
c. Rules – There might be changes in status of an entity while conducting its business operations. Any change in business status of an Accredited Investor must be communicated to the authorities, depositors as well as other stakeholders
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