Strap: SEBI’s reforms harmonise accreditation norms with international benchmarks and fortify investor protections.
Introduction
The Accredited Investors (AI) framework was introduced in 2021 to create a less restrictive environment for savvy investors that have a greater appetite for risk. The Securities and Exchange Board of India (SEBI) relaxed regulations to allow AIs to invest in riskier financial instruments with greater flexibility. Despite four years since its introduction, India counts just 650 accredited investors.
The AI framework’s poor adoption is attributed to a lack of awareness, tedious approvals and reluctance among individuals to disclose key financial information to get accredited. Over the last quarter, SEBI proposed a series of consultation papers aimed at promoting the accreditation of investors. At the same time, SEBI has sought to make certain investment products under SEBI (Alternative Investment Regulations), 2012 (AIF Regulations), accessible only to AIs.
Process of Accreditation
Individuals with an annual income above INR 2 crore or a net worth above INR 7.5 crore (with 50% in financial assets) can apply for accreditation. AIs are exempt from minimum investment requirements (currently INR 1 crore in Alternative Investment Funds (AIF)). In addition, they are exempt from prudential norms and enjoy reduced compliances — such as number of filings, audit frequencies, etc.
In contrast to the US (where due diligence is typically conducted by the funds or by third-party verification service providers like registered investment advisers, licensed attorneys, etc.), the process of accreditation in India is complex and lengthy. Further, for those who endure the process, the accreditation lasts up to only three years (as against five years in the US).
At present, only CDSL Ventures Limited or NSDL Data Management Limited are permitted to grant accreditation. To address concerns surrounding the current capacity constraints and to increase competition amongst agencies, SEBI, in its consultation paper dated 17 June 2025, has proposed allowing all KYC ratings agencies to also function as accreditation agencies.
Additionally, if an investor has applied for accreditation from an agency, AIFs may be allowed to provisionally onboard the investor as an accredited investor, based on the pending due diligence by the AIF to complete the accreditation process. It’s only after onboarding, that AIFs will be able to continue solicitation of funds, negotiation of investment terms and finalisation / execution of the contribution agreements — thereby ensuring that investment opportunities are not missed due to delays in the investors’ accreditation process.
Given the sophisticated nature of AIs, SEBI is also considering relaxing certain conditions applicable to AIFs with only large value funds, i.e, funds in which only AIs are permitted to invest.
Accreditation of Angel Investments
In 2013, SEBI introduced an angel funds framework under the AIF Regulations. In the years since, angel funds have emerged as a popular investment vehicle, raising capital exclusively from eligible ‘angel investors’ to invest in registered start-ups. Unlike other pooled models, each investment by an angel fund requires deal-specific approval from investors. In addition to enjoying the lowest registration fees amongst AIFs, angel funds are also exempt, most notably, from the mandatory use of SEBI’s prescribed Private Placement Memorandum (PPM) template, the annual audit of PPM compliance and reporting to performance-benchmarking agencies.
Considering their ever-growing popularity SEBI has revisited the regulatory framework for angel funds. It has proposed that only accredited investors be permitted to invest in angel funds, replacing the earlier self-declaration mechanism to introduce a third-party verified standard for investors’ eligibility. Existing non-AI investment will be grandfathered, with a one-year transition period for compliance.
SEBI has also discussed revising the floor and the ceiling of the investment limits. The minimum investment threshold is set to be reduced from INR 25 lakh to INR 10 lakh, while the maximum threshold may be increased from INR 10 crore to INR 25 crore. This dual adjustment will broaden participation among potential AIs who are well informed and have the adequate risk appetite to invest in vulnerable growth-stage start-ups, while also enabling larger ticket sizes for such startups.
Introduction of Co-investment Vehicle Scheme
Currently, co-investment is only permitted under the SEBI (Portfolio Managers) Regulations 2020 (PMS Regulations). Fund managers are required to obtain a separate Portfolio Manager (PM) registration to facilitate co-investments, which puts the burden of compliance on the managers, and increases costs.
SEBI has now proposed allowing Category I and II AIFs to offer co-investment opportunities in unlisted securities through a Co-investment Vehicle (CIV) scheme under the AIF Regulations, supplementing the existing PMS Regulations route. The CIV scheme will only be available to AIs, that are part of the AIF, allowing them to co-invest alongside the fund in its investee companies. Under both, the CIV scheme and PMS Regulations, both the co-investor and the AIF must exit from the investment at the same time. The terms of co-investment in an investee company by a CIV scheme are also proposed not to be more favourable than the terms of investment of the AIF.
The most obvious advantage of the CIV scheme is that AIF managers will not require a separate registration to allow co-investment. Another key distinction between the two routes is that the CIV scheme requires multiple co-investors to consolidate into a single investment vehicle. From an investee company’s perspective, a pooled vehicle will simplify the capital table and coordination with shareholders, since their rights will be exercised collectively through the CIV. From the investor’s perspective, it is unclear whether different investors can have differing rights in the CIV scheme and, if so, how those rights would be exercised.
CIVs are also exempt from certain key obligations applicable to AIFs, such as the requirement of a minimum corpus amount of INR 20 crore, manager / sponsor investment commitment and the minimum three-year tenure requirement. In a co-investment structure, an investor is expected to take specific calls on making additional investments beyond their exposure through the AIF, so it becomes important to ensure that they are capable of taking such risky calls. Offering the CIV scheme to only AIs addresses this requirement. Additionally, the co-terminus conditions and alignment of terms of investment will resolve any concerns relating to conflict of interest between the manager, investors of AIF and co-investors.
Conclusion
SEBI’s recent proposals drastically change the composition and investment size of angel funds, allow for greater flexibility in diversification of investments, and provide more opportunities for co-investment in a transparent manner. Moreover, introducing a blanket AI-only rule on a popular investment scheme will help in tackling low adoption of the AI framework and limit exposure of high-risk investment schemes to participants best equipped to evaluate them. As these schemes gain traction, more high-net-worth individuals are expected to seek accreditation. In anticipation of such demand, SEBI’s proposed changes, to allow other KYC agencies to undertake accreditation is a welcome move. Yet, as always, the devil is in the detail — any bottlenecks will only be clear when the draft regulations are made available
