The Securities and Exchange Board of India has introduced a direct verification route for accredited investors in Alternative Investment Funds and portfolio services. This optional change aims to speed up onboarding by allowing managers to certify clients without third-party agencies. While this simplifies the process, it shifts the compliance responsibility onto the fund managers, who must now maintain strict internal controls and records.
The Securities and Exchange Board of India (SEBI) has released a new circular allowing managers of Alternative Investment Funds (AIFs) and portfolio management services to verify the accredited status of their investors directly. Previously, this process often relied on independent third-party agencies. By allowing managers to perform this task in-house, the regulator aims to reduce the time taken to onboard new clients.
This new system is optional. Funds can continue to use third-party agencies if they prefer. For those who choose the direct route, the accreditation will be valid for three years and will be recognized across all managers within the same corporate group. This change is intended to remove bottlenecks in the investment process for high-net-worth clients who are already well-versed in market participation.
To qualify for accreditation under this new manager-led process, investors must meet specific financial exposure criteria. For individuals, Hindu Undivided Families (HUFs), family trusts, and sole proprietorships, the requirement is a securities market exposure of at least ₹5 crore. For body corporates and other trusts, the threshold is higher, set at ₹20 crore. Eligible assets for this calculation include investments in mutual funds, overseas markets, and dematerialized securities. If assets are not reflected in a consolidated account statement, investors must provide a valuation certificate from a practicing chartered accountant.
While this change is designed to improve operational efficiency, it places greater compliance requirements on fund managers. Because the manager is now the entity certifying the client, they must implement strict internal controls to prevent errors or conflicts of interest. The regulator has mandated that all supporting documents used for verification must be kept by the manager for at least five years from the date of accreditation or until five years after the investor's association with the scheme ends, whichever is later.
Investors should note that while this process may lead to faster onboarding, the responsibility for accurate verification now sits firmly with the fund manager. Companies will need to perform internal audits and ensure their data privacy and grievance policies are updated to handle this new role. SEBI has also clarified that overseas residents will be considered accredited investors without needing a separate certificate, simplifying the process for international clients. The ultimate success of this initiative will depend on how effectively fund houses manage these new compliance duties and whether they can maintain high standards of client due diligence without the independent layer of third-party verification.