In a significant move to streamline investments into private markets, the Securities and Exchange Board of India (Sebi) has overhauled the process for onboarding accredited investors into Alternative Investment Funds (AIFs). The regulator, through a circular issued on Friday, now permits investment managers to complete crucial onboarding formalities even before an investor receives the official accreditation certificate from a recognized agency.
Accredited Investor Onboarding Simplified
The revised framework, which comes into effect immediately, addresses sustained feedback from the industry that the accreditation system introduced in 2021 had become operationally cumbersome. Under the new rules, AIF managers can assess an investor's eligibility themselves. If they are satisfied that the investor meets the prescribed income or net worth thresholds, they can move forward with finalizing and executing contribution agreements and initiating related operational processes without waiting for the formal certificate.
However, Sebi has established clear guardrails to prevent misuse. Any financial commitments made by such provisionally onboarded investors cannot be counted towards the AIF scheme's corpus until the accreditation certificate is officially issued. Furthermore, funds can only be accepted from the investor after the certification process is fully complete.
Documentation Relaxed, Compliance Responsibility Emphasized
In another relief, Sebi has eased the documentation requirements for accreditation based on net worth. Previously, a detailed breakdown of an applicant's net worth had to be attached as an annexure to the certificate issued by a chartered accountant. Responding to market representations, the regulator has now made this detailed breakup optional. It has clarified that chartered accountants need only confirm that the applicant meets the prescribed net worth threshold, without being mandated to specify the exact figure.
Accredited investors are individuals or entities that meet specific financial criteria, allowing them access to higher-risk investment products like those offered by AIFs. The certification is still carried out by recognized agencies, which include subsidiaries of stock exchanges and depositories.
The circular also places enhanced responsibility on AIF trustees, sponsors, and managers to ensure adherence to these revised norms. Compliance must be demonstrated through the compliance test report, a key internal control mechanism outlined in Sebi's master circular for AIFs.
Expected Impact and Industry Context
This regulatory easing is anticipated to significantly reduce friction and delays for high net worth individuals (HNIs) and family offices looking to access private market products through AIFs. By allowing parallel processing of paperwork, the time-to-invest is expected to shorten, making the Indian AIF landscape more competitive and efficient.
The move follows reports in December that a top Sebi committee was considering allowing AIFs to fully certify accredited investors, akin to the framework operational in the GIFT City. The latest circular represents a calibrated step in that direction, balancing operational ease with necessary investor protection safeguards.
