Sebi moots higher threshold for investment in AIFs

At meeting with the high-level panel headed by Infosys co-founder NR Narayana Murthy on alternative investment funds (AIFs), senior officials of Securities and Exchange Board of India (Sebi) emphasised that AIFs are meant for sophisticated investors with the appetite for risk and the ability to assess the downsides of exposure to unlisted stocks and startups.

At present, an investor with an income or net worth below a certain threshold has to chip in at least ₹1 crore to invest in an AIF – the regulatory term for PE and VC funds. The entry level investment has remained unchanged since AIF rules were announced in 2012.

Accreditation Criteria
However, wealthier or ‘accredited’ investors are permitted to invest less than ₹1 crore. “If the minimum ticket size is increased to ₹2 crore or ₹3 crore, it would encourage more investors to obtain the certificate of accredited investor. Once an investor has an accreditation, the limit would not apply to her,” a person aware of the discussions told ET.

The accreditation certificate, given by external designated agencies, requires an investor to meet any of the following parameters: an income of minimum of ₹2 crore or net worth of at least ₹7.5 crore; or a combination of ₹1 crore income and ₹5 crore net worth. Given a choice, Sebi would like to make accreditation mandatory for investment in AIFs.

“However, this can’t happen immediately, given the slow pace at which accreditation happens. So, the regulator would look into this to quicken the process. Also, it is widely perceived that the investment limit should be raised from ₹1 crore but given the inflation and rise in income levels, raising it sharply to say ₹3 crore could hurt business,” said another industry person.

While an earlier committee had recommended raising the minimum ticket size to as high as ₹5 crore, indications are that the regulator may prefer a more modest increase to around ₹2 crore. Another recently constituted panel report has recommended raising the minimum investment threshold to ₹1.5 crore.

Only once the accredited investors are allowed to put in money, the minimum investment requirement becomes insignificant. “However, increasing the minimum capital commitment/contribution for an AIF investor may impact smaller AIFs and first-time managers, which pool money from many small investors investing only the minimum amount. This would particularly be a roadblock at the time of launching of the AIF. This could also impact the investors who are looking to test the waters before allocating larger amounts to the AIF,” said Rajesh Gandhi, partner, Deloitte.