Accredited Investor

Most investor protection in India works by keeping people out: a minimum ticket of Rs 1 crore in an AIF is a crude filter that assumes anyone who can write that cheque can absorb the loss.

Accreditation replaces the crude filter with a tested one. An investor proves income or net worth to an accreditation agency, receives a certificate, and can then be admitted on relaxed terms — because the regulator now has evidence of capacity rather than an inference from cheque size.

The bargain runs both ways. The accredited investor gets flexibility; in exchange the product they buy may not carry the same regulatory oversight as one sold to everybody else, and they sign an undertaking saying they understand that.

Eligibility, from Chapter 17:

Individual, HUF, family trust, sole proprietorship or partnership — any one of:

• annual income of at least Rs 2 crore; or
• net worth of at least Rs 7.5 crore, of which not less than Rs 3.75 crore is in financial assets; or
• annual income of at least Rs 1 crore and net worth of at least Rs 5 crore, of which not less than Rs 2.5 crore is in financial assets.

The primary residence is excluded from net worth. For joint parent-and-child holders at least one must qualify independently; for spouses the combined income or net worth is taken; in a partnership firm each partner must qualify independently.

Body corporate, and any trust other than a family trust — net worth of at least Rs 50 crore, computed for a body corporate as (capital + free reserves) − (accumulated losses + deferred expenditure not written off), and for a trust as book value of all assets other than intangibles less book value of total liabilities.

Deemed accredited, no certificate needed: central and state governments, developmental agencies and funds set up by them, QIBs under the ICDR Regulations, Category I FPIs, sovereign wealth funds and multilateral agencies.

The accreditation agency is a subsidiary of a recognised stock exchange or of a depository. It issues a certificate carrying a unique accreditation number and validity dates, granted solely on KYC and financial information — and the certificate itself disclaims that it exempts anyone from doing their own due diligence. Validity is 2 years, or 3 years where the applicant met the criteria in each of the two preceding financial years.

What accreditation actually buys, inside the AIF rules:

A Large Value Fund for accredited investors (LVF) is the far end of the same idea: every investor other than the manager, sponsor and their employees or directors commits at least Rs 70 crore (USD 10 million equivalent), and the fund is then exempted from filing its PPM through a merchant banker, from the PPM template and PPM audit, and from the Investment Committee conditions.

Consent can be withdrawn. An investor who drops the benefit of the lower ticket size must bring their investment up to the regulatory minimum within the time the client agreement allows; investments already made are grandfathered. Investors in an LVF, or in any scheme launched exclusively for accredited investors where concessions have been availed, cannot withdraw consent at all.

Meera runs a design practice. Her annual income is Rs 1.2 crore. Her net worth is Rs 8.5 crore, of which the flat she lives in is Rs 2.5 crore and financial assets are Rs 3 crore.

Test her against the three limbs:

Note what did the work: stripping the Rs 2.5 crore flat takes her net worth from Rs 8.5 crore to Rs 6 crore, which fails the second limb outright but still clears the third.

With a certificate in hand, Meera commits Rs 40 lakh to a Category II private credit AIF. Without it that commitment is illegal — the floor is Rs 1 crore. She is also excluded from the scheme's 1,000-investor count, which is why a manager assembling a large book of small accredited tickets does not run out of headroom.

Compare a family office with a corpus of Rs 900 crore that accredits as a body corporate on the Rs 50 crore net-worth test. It commits Rs 90 crore to a single fund — above the Rs 70 crore LVF line — so the manager can structure the scheme as a Large Value Fund and skip the merchant-banker PPM filing and the annual PPM audit entirely. The concession that matters to Meera is the floor; the concession that matters to the family office is the paperwork.

Chapter 17 (Regulatory Framework), section 17.4 is the Accredited Investor framework end to end, and the thresholds recur in Chapter 7 (the ecosystem), Chapter 8 (the 1,000-investor count) and Chapter 15 (the CTR line on minimum investment). Expect straight recall of the three individual limbs and the Rs 50 crore corporate test, questions on which institutions are deemed accredited, and application questions that hand you an income and a net worth — usually with a house in it — and ask whether the investor qualifies.

• The primary residence is excluded from net worth, for an individual, the Karta of an HUF and a sole proprietor. Most application questions turn on exactly this line.
• The third limb is conjunctive. Rs 1 crore of income and Rs 5 crore of net worth and Rs 2.5 crore of it financial. The first two limbs are alternatives; the third is a package.
• Accreditation removes the minimum investment amount; it does not remove the scheme's Rs 20 crore minimum corpus. Those are different rules pointed at different parties.
• Accredited investors are excluded from the 1,000-investor cap, not counted at a discount.
• A body corporate is tested at Rs 50 crore net worth — there is no income test for it, and a trust that is not a family trust is tested as a body corporate, on a different net-worth formula from the corporate one.
• Validity is 2 years, and 3 only where the criteria were met in each of the two preceding financial years. A newly incorporated entity meeting the net-worth test on the date of application gets 2 years.
• LVF investors cannot withdraw consent. The general right to withdraw consent and be grandfathered does not reach them.