SEBI Relaxes Accredited Investor Norms with Direct Manager Verification and ₹5 Crore Exposure Threshold

The Securities and Exchange Board of India (SEBI) has introduced major relaxations to its Accredited Investor (AI) framework, easing the onboarding pathway for high-net-worth individuals (HNIs) and institutional participants investing in Alternative Investment Funds (AIFs), Specialized Investment Funds (SIFs), and Portfolio Management Services (PMS).

The regulatory overhaul, notified through a circular following amendments to the SEBI (Alternative Investment Funds) Regulations, addresses longstanding market demands to reduce bureaucratic bottlenecks by permitting investment managers to directly assess and certify an investor's accreditation status.

Direct Manager-Led Accreditation

Under the prior framework established in 2021, investors seeking accredited status were required to secure certification exclusively through SEBI-recognized accreditation agencies (such as stock exchanges and depositories).

Under the revised norms, SEBI has introduced an optional, manager-led route:

• Managers of Alternative Investment Funds (AIFs), asset management companies overseeing Specialized Investment Funds (SIFs), and registered portfolio managers can directly determine and record an investor's accreditation status at onboarding or during a scheme's lifecycle.
• The independent accreditation agency route remains functional as an alternative for investors who prefer a centralized certificate.
• Accreditations granted under either route will carry a uniform validity of three years.
• Manager-determined accreditation will be portable across all asset management, AIF, and PMS arms belonging to the same corporate group, avoiding repetitive paperwork.

However, if an investor transitions to an unrelated investment manager outside the corporate group, a fresh assessment or an independent accreditation certificate will be required.

Introduction of Securities Market Exposure Route

To widen the pool of eligible participants beyond conventional annual income and total net worth thresholds, SEBI has created a standalone qualifying criterion based on securities market exposure.

Qualifying Exposure Thresholds:

• ₹5 Crore Minimum Exposure: Applies to individuals, Hindu Undivided Families (HUFs), family trusts, and sole proprietorships.
• ₹20 Crore Minimum Exposure: Applies to body corporates and trusts (other than family trusts).

Eligible securities market exposure encompasses dematerialized listed and unlisted securities, mutual fund folios, futures open interest (reckoned at notional value), overseas securities investments, and holdings under the National Pension System (NPS). Holdings can be substantiated through Electronic Consolidated Account Statements (eCAS) and broker depository records.

This addition addresses a persistent gap where active market investors possessed sizable portfolios but did not satisfy traditional income documentation criteria.

Relief for LLPs and Foreign Capital

The revised regulations also streamline eligibility for Limited Liability Partnerships (LLPs) and foreign investors:

• LLP Look-Through Provision: Previously subjected to a steep ₹50 crore corporate net worth threshold, LLPs can now qualify under a look-through mechanism if each partner independently meets accredited investor criteria.
• Deemed Status for Foreign Investors: Persons Resident Outside India (PROIs) under the Foreign Exchange Management Act (FEMA), including foreign portfolio investors, will be deemed accredited investors by default, subject to standard anti-money laundering (PMLA) and KYC checks.

Compliance Safeguards and Investor Impact

To balance ease of access with investor protection, SEBI has placed direct accountability on fund managers. Entities utilizing manager-led accreditation must implement formalized onboarding policies, subject their internal accreditation workflows to periodic audits, and preserve all verification documents for a minimum retention period of five years following an investor's exit from a fund or scheme.

For India’s burgeoning wealth management landscape, these relaxations remove significant operational friction. Accredited investors enjoy exemptions from standard minimum ticket sizes (such as the mandatory ₹1 crore minimum for regular AIF commitments) and gain flexible access to Large Value Funds (LVFs) and customized institutional-grade products. The revamped regime is anticipated to accelerate domestic capital pooling into private equity, venture debt, and high-alpha portfolio strategies.