How can a HUF become an Accredited Investor?

This is a detailed guide on how Hindu Undivided Family (HUF) can become accredited investors in India with comprehensive eligibility criteria, required documents, and step-by-step process for SEBI accreditation including Karta requirements.

WHAT ARE ACCREDITED INVESTORS?

Accredited investors are individuals or entities that meet specific financial criteria and are recognized as having the financial sophistication and capacity to participate in investment opportunities that may not be available to the general public, such as Alternative Investment Funds (AIFs). In the context of Indian regulations, the definition and eligibility criteria for accredited investors are as follows:

DEFINITION OF ACCREDITED INVESTORS

An "accredited investor" ("Accredited Investor") is any person who is granted a certificate of accreditation by an accreditation agency recognized by Securities and Exchange Board of India ("SEBI").

The term "accredited investor" is defined under the SEBI (Alternative Investment Funds) Regulations, 2012 ("AIF Regulations") as follows:

"(ab) "accredited investor" means any person who is granted a certificate of accreditation by an accreditation agency who,

(i) in case of an individual, Hindu Undivided Family, family trust or sole proprietorship has:

(A) annual income of at least two crore rupees; or

(B) net worth of at least seven crore fifty lakh rupees, out of which not less than three crores seventy-five lakh rupees is in the form of financial assets; or

(C) annual income of at least one crore rupees and minimum net worth of five crore rupees, out of which not less than two crore fifty lakh rupees is in the form of financial assets.

(ii) in case of a body corporate, has net worth of at least fifty crore rupees;

(iii) in case of a trust other than family trust, has net worth of at least fifty crore rupees;

(iv) in case of a partnership firm set up under the Indian Partnership Act, 1932, each partner independently meets the eligibility criteria for accreditation:

Provided that the Central Government and the State Governments, developmental agencies set up under the aegis of the Central Government or the State Governments, funds set up by the Central Government or the State Governments, qualified institutional buyers as defined under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, Category I foreign portfolio investors, sovereign wealth funds and multilateral agencies and any other entity as may be specified by the Board from time to time, shall deemed to be an accredited investor and may not be required to obtain a certificate of accreditation."

ELIGIBILITY CRITERIA OF HINDU UNDIVIDED FAMILY (HUF) TO BECOME ACCREDITED INVESTORS

Under Hindu Law, a Hindu Undivided Family ("HUF") is a family which consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. An HUF cannot be created under a contract, it is created automatically in a Hindu Family.

For HUF to become Accredited Investors, they have to meet the following criteria:

1. Annual income of at least ₹2 crore; OR

2. Net worth of at least ₹7.5 crore, with at least ₹3.75 crore in financial assets; OR

3. Annual income of at least ₹1 crore AND net worth of at least ₹5 crore, with at least ₹2.5 crore in financial assets. (Regulation 2(ab)(i) of the AIF Regulations; Clause 1.1 (i) of the Annexure 8 of the Master Circular)

In case of accreditation of HUF investors, the value of the primary residence of the Karta shall not be considered for calculation of net worth.

BECOMING ACCREDITED INVESTORS FOR HINDU UNDIVIDED FAMILY

Which documents are required for an HUF to become an Accredited Investor?

1. Proof of Identity and Address of the HUF and the Karta

   a) Self attested copy of PAN Card of Karta b) Self attested Aadhar Card / Driving License of Karta c) Self attested copy of PAN Card of HUF

2. Income Proof: Copies of Income Tax Return(s) or ITR Acknowledgement

3. Net worth proof: Net worth Certificate from practicing chartered accountant. The latest net-worth certificate shall not be older than 6 months.

4. Declaration from the HUF that: The submissions made to the Accreditation Agency are true and correct and if found incorrect, the application may be rejected.

Accreditation Agency may seek other documents to verify the genuineness of the information/documents submitted by the applicants and in cases where the information submitted by applicants appears to be contradicting/suspicious /fictitious.