Accredited Investor

Accredited Investor Definition

Accredited investor refers to the person who is given special status as per the financial regulation laws where he is allowed for dealing in the securities that are not registered with the regulatory authorities and it generally includes the persons such as high net worth individuals, brokers, trusts, banks, and insurance companies. However, if you have lots of money to invest and want to do it yourself, you can get the status of accredited investor and do the investing yourself.

Accredited Investor

You are free to use this image on your website, templates etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Accredited Investor (wallstreetmojo.com)

How to become an Accredited Investor?

One can look at the details put forward by federal regulations (here) to see how to become an accredited investor. Some of the major ways to get accreditation are:

  • Total assets of over 500,000 USD.
  • The net worth of 1,000,000 USD (it might be joint net worth too).
  • Any director, executive officer of the issuer of securities being sold.
  • Net yearly income of over 300,000 USD.

The Investor has to have one or more of the above to become an accredited investor.

A university with 5 million USD can be an accredited investor, so does an individual worth 1 million USD. Essentially, any individual who has enough money to invest can be an accredited investor. The reasoning behind the government putting up such barriers for entry is that investing is a tough and risky job. People who become investors should be in such a position that they can lose their investment and still stay safe.

Types of Accredited Investors

Example of Place Where Only an Accredited Investor can Invest

Let us assume I am an investor who is trying to invest in a very risky asset. I choose to invest in startups – one of the most difficult and risky areas to invest in. Essentially, the money we put in startups either go to zero or zoom to 100x, unlike the regular investments, which give reasonable returns. To invest in a startup, I go to an angel.co (Angelist) to see where I want to invest.

Angel.co

Source: angel.co/India

The rules for investing in Indian startups (only Indian) is that the Investor is supposed to have more than 20,000,000 INR worth of tangible assetsTangible AssetsAny physical assets owned by a firm that can be quantified with reasonable ease and are used to carry out its business activities are defined as tangible assets. For example, a company's land, as well as any structures erected on it, furniture, machinery, and equipment.read more. Keep an eye on the word tangible; we cannot have a patent or intangible assetIntangible AssetIntangible Assets are the identifiable assets which do not have a physical existence, i.e., you can't touch them, like goodwill, patents, copyrights, & franchise etc. They are considered as long-term or long-living assets as the Company utilizes them for over a year. read more that is worth the same. The asset has to be tangible and provable. To invest in American startups, I need to have a net worth of more than a million USD. Angelist verifies the accreditation of the Investor before allowing them to invest. There are very few funds in the world that invest in startups, and fewer that invest in the way an investor likes, so it makes sense for the Investor to go and find out a startup that he can invest indirectly and make the investment.

Advantages of Becoming an Accredited Investor

Disadvantages of Becoming an Accredited Investor

Limitations of Accredited Investor

Important Points

  • This is just a recognition by the government that you have lots of money, and you are allowed to risk your money in a way you deem fit.
  • It gives extra power, but also the risk inherent in those investments is way more.
  • The cost of investing in unconventional methods is more than the cost of investing in regular methods.
  • Any accredited investor will be more prone to government scrutiny – including your relations.

Conclusion

An accredited Investor is someone who has a special power, which is allowed to deal in securities, investments, and venture capitalVenture CapitalVenture capital (VC) is long-term finance extended to startups with high-growth potential to help them succeed exponentially. The investors are venture capitalists who bear the excessive financial risk and provide guidance to startups to attain their objectives.read more without exactly being registered with financial authorities. In general, if you want to be an investor, you ought to be a financial body that is registered with the federal bank and security exchange commission.

The ability to invest in a wider range of securities or assets or financial assetsFinancial AssetsFinancial assets are investment assets whose value derives from a contractual claim on what they represent. These are liquid assets because the economic resources or ownership can be converted into a valuable asset such as cash.read more is incredibly exciting to look at, especially when you are sitting on a pile of money. But once the accredited investor status is granted, there is not much difference in the way once invests or in the financial knowledge. To put it bluntly, it is just a pass that takes you into the club of elite investments. But you will be charged for that.

Recommended Articles

This has been a guide to what is an Accredited Investor and its Definition. Here we discuss its types and how to become an accredited investor along with advantages and disadvantages. You can learn more about portfolio management from the following articles –

Reader Interactions

Leave a Reply

Your email address will not be published. Required fields are marked *