An accredited investor is either a business entity or an individual who has the responsibility to tackle securities that might not be registered with the financial authorities. They get this privileged access only after satisfying at least one requirement in terms of Net worth, Income, governance status, asset size, or professional experience.
These investors include trusts, brokers, Insurance companies, banks, and high net worth individuals. In India, the process of the accredited investor was introduced by the Security and Exchange Board of India (SEBI).
An institution or a business entity, wanting to invest in listed startups and has a net worth of Rs. 25 crores can be considered a valid option for the position of accredited investor. As far as an individual is concerned, he must have a net worth of Rs. 5 crores minimum and the total annual gross maintenance has to be of Rs. 50 lakhs.
The accredited investor requirements are finalized by the regulatory body to make sure that the interests of investors are secured, considering there is a high chance of losing Capital on undiscovered investments.
Furthermore, SEBI also makes sure that the investors are financially stable to grasp losses that may occur because of unregulated securities.
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To become an accredited investor in India, the business entity or the investor, who has a Demat account, will have to apply for accreditation to the stock exchange or depositories. Once the investor’s eligibility is validated, he gets the granted accreditation by the stock exchange.
However, it remains valid for a period of three years. Also, the investor would have to keep the depositories, and stock exchange notified regarding any sort of changes in their financial status.
Let’s assume there is an individual who earned Rs. 1 crore of income in the last three years and reported a primary residence value of Rs. 7 crores with a car worth Rs. 75 lakhs and mortgage of Rs. 80 lakhs. Although the individual fails to pass the income test, whether he could still be an accredited investor gets decided on the Basis of his net worth, which would not include the primary residence value and will be calculated by subtracting liabilities from assets.