Hello Readers! 

The controller and regulator of Mutual Fund In India, SEBI (Security Exchange Board In India) came up with a new proposal the last Wednesday that is 24^th February 2021. The Consultation Paper has proposed the creation of a new class of ‘Accredited Investors (AI)’.

In its new proposal, SEBI expressed that there are certain investors in the market that hold a good market experience and have better understandings of the risks and returns associated with different financial products. Thus, these investors can be allowed to invest in customized or complex products.

The investors recognized or classifies in the category of AI investors, would be given relaxations on certain existing regulations.

Who Will Be Categorized In The Category Of AI?

The proposal mentioned in the consultation paper states that investors completing certain criteria will be categorized as AI. These criteria are related to net worth and financial assets that the investor holds.

To be categorized as AI, individual needs to one of the following three conditions:

• His/her annual income must be at least Rs 2 crore.
• His/her net-worth must be at least Rs 7.5 core or more, with at least Rs 3.75 crore in financial assets.
• His/her annual income must be at least Rs 1 crore, and net worth must at least be Rs 5 crore, with investments in financial assets worth at least Rs 2.5 crore.

Door Opens Up For The New Complex Products!

In favor of its proposal, SEBI said that classifying investors in this new category will help us to focus our regulatory sources more on investors that need protection.

On SEBI’s proposal for a new category of investors, experts said that this is a good move. It will limit the investment in complex products launched in India, only to those investors who have a good financial resource. Thus setting off-limits for other investors.

The consultation paper further mentions that the investments of AI will be regulated but not as heavily as other avenues. It also mentions that as the AI are investors with good experience and good financial resources, this will let AMC design AI-targeted investment products with more innovations.

Flexibility Will be increased For Existing Products!

The Consultation paper of SEBI, states that if the PMS (Portfolio Management Services) products and AIFs, can come out of certain regulatory limits set if they completely establish the fact that all the investors in their fund are AI’s.

For example, in a PMS product, if all the investors fall in the category of AI’s, having a minimum investment of Rs 10 crore each then that PMS product might enjoy the benefit of investing 100% of its corpus in unlisted securities, which is restricted to only 25% for other funds.

In the case of AIF that has only AI investors with a minimum investment of Rs 70 crore, can borrow money – more than two-times the net asset value of the fund – to make investments.

What Experts Has To Say About This?

The experts have happily welcomed the proposal of AI (Accredited Investors) by SEBI.

Vinod Jain, Principal Adviser at Jain Investment Services, said that the proposal of AI by SEBI is already a well-known global idea. He further said that this idea of SEBI will give such investors more regulatory leeway in making their investments.

Predicting about the coming trend in the market after this new category of investors, he further said that, “We could see global hedge funds that can have a ‘sell call’ on certain assets in certain countries, and a ‘buy call’ in other countries. We could also see leveraged investment products”.

Well, SEBI has put this forward as a proposal as of now, that is this idea of SEBI is still open for suggestions and comments from investors and market experts till March 18, 2021.

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For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.

Happy Investing!

(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).