An accredited investor is a term used by the Securities and Exchange Commission (SEC) to describe an individual or entity that is permitted to participate in certain types of investment opportunities that are not available to the general public.
The criteria for accreditation are intended to identify investors who have the financial sophistication and ability to bear the risks of these types of investments.
In the United States, an individual is considered an accredited investor if they meet any one of the following criteria:
Have a net worth of at least $1 million, either individually or jointly with their spouse
Have an income of at least $200,000 in each of the last two years (or $300,000 jointly with a spouse), and have the expectation to earn the same amount this year.
Entities such as banks, partnerships, trusts, and corporations can also be considered accredited investors if they meet certain criteria.
Accredited investors are permitted to invest in certain private offerings and hedge funds that are not registered with the SEC and are not required to comply with the same regulatory requirements as public offerings. This allows companies to raise capital more easily, but also exposes investors to more risk.
It's important to note that being an accredited investor doesn't mean that the investment is safe or guaranteed, it's just that accredited investors are assumed to have more knowledge and financial resources to bear the risks of these types of investments.
In India, the Securities and Exchange Board of India (SEBI) is the regulator that defines and enforces rules for accredited investors. The criteria for accreditation are similar to those in the United States.
According to SEBI, an individual is considered an accredited investor if they meet any one of the following criteria:
Have a net worth of at least INR 2 crore (approx. $2.7 million)
Have an income of at least INR 50 lakh (approx. $68,000) per annum for the last three financial years.
Entities such as companies, partnership firms, trust, and HUF (Hindu Undivided Family) can also be considered accredited investors if they meet certain criteria.
Accredited investors in India are permitted to invest in certain private offerings that are not registered with the SEBI, they are also permitted to invest in unlisted shares, unlisted bonds and debentures, and other securities.
As in other countries, these types of investments can be more risky than public offerings and thus it's important for investors to conduct thorough research and due diligence before investing.