SEBI targets 4 lakh accredited investors via expanded AIF

1. At a Glance

• Alternative Investment Funds (AIFs) are privately pooled investment vehicles. They raise money from institutional investors and high-net-worth individuals (HNIs) and put it into alternative assets such as unlisted securities and other non-traditional investments [1].
• Accredited Investors (AIs) are investors whom SEBI treats as financially sophisticated, based on their income, net worth or financial assets. They may invest in AIFs below the usual minimum ticket size [4].
• SEBI plans to widen the eligibility criteria so that the number of accredited investors grows from about 1 lakh to 4 lakh [1].
• UPSC relevance: this sits within capital-market regulation (GS-III, mobilisation of resources). It involves the tension between investor protection and access to risk capital for start-ups and high-growth firms.

2. Why in the News

• October 2026: Sandip Pradhan, a whole-time member of SEBI, said at the CII Alternative Investments Summit in Mumbai that a circular expanding the AIF framework would be issued "very soon". The circular will add provisions for "assets of high growth or movement in the securities market" [1].
• The SEBI board has already discussed the revised framework [1].
• The expansion is expected to raise the pool of accredited investors from 1 lakh to 4 lakh [1].
• SEBI's August 2026 consultation paper, Proposal 6, would let individuals with ≥₹5 crore and companies with ≥₹20 crore invested in securities qualify as AIs. eCAS (electronic Consolidated Account Statements) or broker statements would be accepted as proof [1].

3. Background & Evolution

• 2021: The SEBI board approved a framework that introduced accredited investors into the Indian securities market [3][6]. SEBI then set out the operating modalities, including verification by accreditation agencies [6].
• June 2022: SEBI relaxed the rules for AIFs that target accredited investors [9].
• December 2023: SEBI simplified the registration requirements for accredited investors. At that time only about 200 accredited investors had registered in India [7].
• July 2025: SEBI reviewed the regulatory framework for Angel Funds under the AIF Regulations [10].
• August–September 2025: SEBI proposed a lighter-touch approach for AIFs serving accredited investors [8]. The proposals included:
• a separate type of AIF scheme open only to accredited investors;
• a gradual move away from the ₹1 crore minimum commitment per investor, with accreditation status becoming the test of investor sophistication;

• lowering the threshold for Large Value Funds to ₹25 crore [2].

• August 2026: A new consultation paper (Proposal 6) proposed easing AI eligibility further, based on securities holdings [1].

• September 2026: SEBI's AIF Master Circular still lists the ₹70 crore threshold for Large Value Funds for Accredited Investors [5].

4. Core Static Facts

Item	Fact
Regulator	Securities and Exchange Board of India (SEBI) [1]
Legal base for AI criteria	Regulation 2(ab), SEBI (AIF) Regulations [4]
AI test for an individual, HUF, family trust or sole proprietor (any one)	(a) annual income ≥₹2 crore; or (b) net worth ≥₹7.5 crore, with ≥₹3.75 crore in financial assets; or (c) income ≥₹1 crore plus net worth ≥₹5 crore, with ≥₹2.5 crore in financial assets [4]
Body corporates	Net worth ≥₹50 crore [4]
Non-family trusts	Net worth ≥₹50 crore [4]
Partnership firms (Indian Partnership Act, 1932)	Each partner must meet the criteria on their own [4]
Net worth exclusion	The primary residence is excluded for individuals, HUFs and sole proprietors [4]
Validity of accreditation	2 years if the criteria were met in each of the preceding 3 years [4]
Who verifies	Independent accreditation agencies [4][6]
Main benefit	AIs can invest below the minimum amounts set for AIFs and PMS [4]
Large Value Fund for AIs	Minimum commitment of ₹70 crore per investor; exempt from filing the placement memorandum with SEBI, needs only an intimation [5]
Proposed LVF threshold (2025)	₹25 crore [2]
Standard AIF minimum commitment	₹1 crore per investor [2]
Proposed expanded AI pool	1 lakh → 4 lakh [1]
Proposed AI eligibility (Aug 2026, Proposal 6)	Individuals with ≥₹5 crore and companies with ≥₹20 crore invested in securities; proof through eCAS or broker statements [1]

5. Multi-Dimensional Analysis

Economic

• A larger base of accredited investors brings more domestic risk capital into unlisted, high-growth companies, which can reduce reliance on foreign venture capital and private equity [1].
• Cutting the LVF threshold from ₹70 crore to ₹25 crore is meant to widen the investor base without lowering investor sophistication [2][5].
• Very few people signed up under the old route (about 200 AIs in 2023), so the existing criteria were not working [7].

Investor Protection / Governance

• AIFs invest in complex and possibly illiquid assets. That is why they have a regulatory framework separate from retail products [1].
• Moving from a "ticket size" test (₹1 crore) to an accreditation test changes how SEBI measures sophistication: it would rely on documented wealth rather than the size of the commitment [2].
• Requiring each partner of a firm to qualify separately and excluding the primary residence both stop investors from inflating their eligibility [4].

Legal / Regulatory

• The AI criteria are part of the AIF Regulations (Reg. 2(ab)). SEBI fills in the operating details through circulars and Master Circulars [4][5].
• Lighter-touch rules, such as exemption from filing the placement memorandum, are an example of proportionate regulation that varies with how sophisticated the investor is [5].

Technological / Administrative

• Accepting eCAS and broker statements as proof makes verification easier and cheaper, and reduces paperwork [1].
• Accreditation agencies act as an outsourced verification layer, which puts due-diligence responsibility on intermediaries [6].

6. Recent Developments (last 12–18 months)

• July 2025: SEBI board paper reviewing the Angel Fund framework under the AIF Regulations [10].
• August 2025: SEBI proposed a lighter-touch approach for AIFs serving accredited investors [8].
• September 2025: SEBI board paper "Proposals to give a regulatory fillip to Accredited Investors", covering AI-only schemes and the ₹25 crore LVF threshold [2].
• August 2026: Consultation paper, Proposal 6: ₹5 crore (individuals) and ₹20 crore (companies) invested in securities; eCAS accepted [1].
• September 2026: Updated Master Circular for AIFs, which still lists the ₹70 crore LVF threshold [5].
• October 2026: SEBI whole-time member Sandip Pradhan said a circular is coming soon, with a target of 4 lakh AIs [1].

7. Prelims Hooks

• AIFs are privately pooled investment vehicles. They are not retail products [1].
• Accredited investor criteria are found in Regulation 2(ab) of the SEBI (AIF) Regulations [4].
• An individual qualifies as an AI with annual income of ₹2 crore or more [4].
• Alternatively, an individual qualifies with net worth of ₹7.5 crore or more, of which at least ₹3.75 crore is in financial assets [4].
• Body corporates need a net worth of at least ₹50 crore to qualify as AIs [4].
• The primary residence is excluded when calculating net worth for AI status [4].
• Accreditation is valid for 2 years if the criteria were met in each of the preceding 3 years [4].
• Large Value Fund for AIs: minimum commitment of ₹70 crore per investor, as per the September 2026 Master Circular [5].
• SEBI proposed in 2025 to lower the LVF threshold to ₹25 crore [2].
• The standard minimum AIF commitment is ₹1 crore per investor [2].
• Only about 200 accredited investors were registered in India as of December 2023 [7].
• The 2026 proposal accepts eCAS as proof of eligibility [1].
• SEBI's target is to expand the AI pool from 1 lakh to 4 lakh [1].
• The announcement was made at the CII Alternative Investments Summit (Mumbai) by SEBI WTM Sandip Pradhan [1].

8. Why "1 Lakh to 4 Lakh" Is Not a Count of Certified Investors

• Very few investors actually hold an accreditation certificate
• In June 2025, SEBI's own board paper said India had fewer than 1,000 registered Accredited Investors (AIs) [2].
• The same paper counted just over 72,000 unique investors in all AIFs put together [2].

• The Hindu report gives a current pool of about 1 lakh, but it does not explain how that number was counted [1].

• So read the 1 lakh and 4 lakh figures as people who could qualify, not people who have qualified

• Some investors, such as qualified institutional buyers (QIBs, large professional investors like banks and insurers), Category I foreign portfolio investors and government funds, are "deemed" AIs. They never need a certificate, so they do not appear in the registered count [2].

• To reach 4 lakh real AIs, lakhs of individuals would still have to apply and get verified by an accreditation agency [4].

• The 2023 to 2025 trend is the real test

• About 200 registered AIs in December 2023 [7] rose to fewer than 1,000 by June 2025 [2].
• That is growth, but from a very small base. Simply widening who is eligible will not fill the pool unless signing up becomes easy and worth the effort.

9. What Investors Give Up Inside an "AI-Only" Scheme

• Becoming accredited means signing away some protections
• An AI must declare in writing that they know their investments "may not be subject to the same regulatory oversight" as other investors' money [2].

• SEBI's stated logic is that rules built to protect investors can be relaxed when every investor in a scheme is accredited [2].

• Equal treatment of investors can be waived

• Normally, every investor in an AIF scheme must have pari-passu rights (equal rights, so a special deal for one investor cannot hurt the others) [2].

• AI-only schemes may drop this rule if each investor signs a waiver [2]. A big investor could then get better terms than a small one in the same fund.

• Your money can be locked in for longer

• AI-only schemes may extend the fund's life by up to 5 years, instead of 2, with the consent of two-thirds of investors by value [2].

• One public comment warned that this can hide poor performance for longer. Because the vote is counted by value, a few large holders can outvote smaller individual investors [2].

• Fewer checks on the fund manager

• The manager's team would not need NISM certification (a basic exam in fund-management knowledge). 5 of 23 commenters objected [2].

• Oversight duties of the trustee (the independent party meant to guard investors' interests) may pass to the manager itself. 4 of 17 commenters objected [2].

• Why this matters now: these protections are being removed at the same moment SEBI wants to bring in four times as many AIs [1]. Many of the new entrants will be less experienced than today's large institutional AIs.

10. The Case Against: Being Rich Is Not the Same as Understanding Risk

• The strongest objection
• Accreditation checks only income, net worth or holdings [4]. It never tests whether the person understands illiquid, unlisted investments.
• The August 2026 proposal goes further. Anyone with ₹5 crore in securities would qualify, shown through an eCAS [1]. That counts how much someone holds, not what they know.

• In SEBI's own consultation, 8 of 20 commenters opposed making accreditation the only test. Some asked for a skill- or knowledge-based route to accreditation [2].

• What is right about SEBI's side

• The old ₹1 crore ticket-size test is weaker still. It was fixed in 2012 and says nothing about whether the investor can afford to lose that money [2].

• SEBI found that the ticket test can push investors to put most of their wealth into AIFs, which are risky by design [2]. Accreditation at least checks financial health through an independent third party.

• Honest verdict

• Moving from ticket size to accreditation is an improvement.
• But widening eligibility and removing protections at the same time pull in opposite directions.
• One commenter suggested making AI criteria stricter to make up for lower entry thresholds [2]. The 2026 plan does the reverse [1].

11. The Back-Door Risk: AIFs Used to Get Around Other Rules

• AIFs have already been used to dodge banking rules
• In December 2023, RBI stopped banks and NBFCs from investing in AIF schemes that had in turn invested in companies borrowing from them [11].

• The reason was evergreening (giving a borrower fresh money so it can repay an old loan, which hides a bad loan). Here a direct loan was being replaced by an indirect exposure through AIF units [11].

• SEBI officials have flagged the intent behind some AIF money

• In December 2024, a SEBI official said about a fifth of AIF investments were questionable in terms of intent [12].

• The same official argued that light-touch rules make sense only if investors are truly accredited [12].

• Why this matters for the expansion

• SEBI says the rule against using AIFs "for circumvention of other laws" will stay in force even in AI-only schemes [2].
• But fewer trustee checks and waived equal-treatment rules make it harder to spot misuse from the outside. A much larger pool of AIs makes the job bigger for the regulator.

12. What SEBI Should Lock In Before the Circular Lands

• SEBI should expand step by step, as it has already promised
• In 2025, SEBI committed to moving to accreditation-only AIFs "in a phased manner", based on how AI-only schemes perform and how many people get accredited [2].

• The 4 lakh target should follow that test. Expand eligibility first, then publish data on take-up and complaints, and only then relax more rules.

• SEBI should write independence norms for trustees

• SEBI itself admits that the AIF rules today set no standard for a trustee's independence from the sponsor or manager [2].

• Before trustee duties are shifted to managers in AI-only schemes, an independence standard is the minimum safeguard.

• SEBI should add a knowledge route alongside the wealth route

• Dissenting commenters in the 2025 consultation asked for skill- or knowledge-based accreditation [2].

• This would let a trained professional with modest wealth qualify. It would also stop a rich but inexperienced investor from being treated as sophisticated automatically.

• SEBI should keep the ₹70 crore to ₹25 crore change separate from mass accreditation

• Today's Large Value Funds (LVFs) are a small, institutional club: 62 schemes, 78 domestic and 25 foreign investors, ₹1,34,752 crore committed (June 2025) [2].
• Their extra freedoms were designed for that club. The Ease of Doing Business Working Group even suggested going down to ₹10 crore [2]. These freedoms should not slide down by default to newly eligible individuals with ₹5 crore.

13. Anchors for Answers

• Data: fewer than 1,000 registered Accredited Investors against about 72,000 unique AIF investors (June 2025) [2]
• Data: LVFs: 62 schemes, 103 investors, ₹1,34,752 crore committed (June 2025) [2]
• Data: 12 of 20 commenters backed accreditation as the only test; 8 opposed [2]
• Report/Committee: SEBI Alternative Investment Policy Advisory Committee (AIPAC) and Ease of Doing Business Working Group on AIF Regulations (2025) [2]
• Law/Case: Regulation 2(ab), SEBI (AIF) Regulations, 2012 [4]; Regulation 20(22) pari-passu rights and Regulation 13(5) tenure extension [2]
• Comparison: RBI's December 2023 curbs on bank and NBFC investment in AIFs to stop evergreening, an example of AIFs used to get around other rules [11]

14. Mains Relevance

• GS-III: Indian Economy, covering mobilisation of resources, capital markets, and investment models.
• GS-II (secondary): statutory and regulatory bodies (SEBI) and their role in governance.
• Possible question stems: 1. The accredited investor framework is an example of proportionate regulation in India's capital markets. Examine its rationale and limitations. 2. Discuss how Alternative Investment Funds can help channel domestic savings into start-ups and high-growth enterprises. What regulatory safeguards are needed? 3. Low take-up has limited the accredited investor regime in India. Analyse the reasons and assess SEBI's recent reforms.

15. Related Topics to Study Next

• AIF Categories I, II and III: you need the categories to see which funds get AI-related relaxations.
• Angel Funds under the AIF Regulations: these early-stage funds were reviewed in 2025 [10].
• Portfolio Management Services (PMS): accredited investors also get relaxed minimums here [4].
• SEBI structure and powers (SEBI Act): the legal source of SEBI's rule-making power.
• Venture capital and the Startup India ecosystem: the destination for capital raised by AIFs.
• Depositories (NSDL/CDSL) and eCAS: the infrastructure used to verify eligibility.
• Private placement vs public issue: the basis for AIFs' lighter disclosure requirements.

16. NCERT Concepts to Revise

• Securities and Exchange Board of India (Polity): SEBI is the regulator widening accredited-investor eligibility and issuing the circular on the AIF framework.
• Venture capital (Economy): AIFs channel risk capital into start-ups and high-growth firms, a role similar to venture capital.
• Private equity (Economy): AIFs invest in unlisted companies, which is the core activity of private equity funds.
• Capital market (Economy): The note sits within capital-market regulation, covering how long-term funds are raised and investors are protected.
• Startup (Economy): Start-ups are the main destination for the domestic risk capital that AIFs and accredited investors supply.
• Investment (Economy): Helps you see what counts as investment in capital formation, as opposed to buying financial assets.

17. Common Errors / Trap Areas

• AI vs HNI: "accredited investor" is a status verified by an accreditation agency under the AIF Regulations. It is not simply the same as being a high-net-worth individual [4][6].
• ₹70 crore vs ₹25 crore: ₹70 crore is the current LVF threshold in the September 2026 Master Circular. ₹25 crore is only a proposal [2][5].
• ₹1 crore is the standard minimum AIF commitment, not an AI eligibility criterion [2].
• Primary residence: it is excluded from net worth, which is a common trap in options [4].
• The 4 lakh figure is a target or expectation, not current enrolment. The current pool is about 1 lakh [1].