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Accredited Investor Singapore – How Do I Know I’m One of Them?

Personal Finance

Written by:

Alvin Chow

Singapore is arguably growing into one of the competitive financial centers.

One of the reasons for this financial growth is the increasing number of high net-worth individuals. This particular trend has brought forth a financial status that people may want to identify with: accredited investor.

Becoming an accredited investor may sound fancy at first. However, due to events such as that of Swiber, many investors are slowly starting to shy away from this status. Swiber filed for bankruptcy last July 2016, but for recent years have been getting mysterious investors. As of July 2020, Swiber has filed for extension of time to prepare and submit the Resumption Proposal to the SGX-ST. Find out more about Swiber's income in the preceding bankruptcy in this post

The charm of being an accredited investor in Singapore is slowly dying out due to the potential risks attached to it.

For those of you who are still new to investment products and institutional investors, it helps to back yourself with important information before openly claiming this status.

Fortunately, you don’t need to look any further for that because we are here to tell you the things you need to know about being an accredited investor in Singapore:

What is an Accredited Investor?

Before going deep, let's look at the definition of accredited investor.

An accredited investor is an investor with a special status under financial regulation laws. They are sometimes even called sophisticated investors, thus making it sound enticing and fancy.

These investors are usually either of the following:

  • High Net-worth Individuals
  • Banks
  • Financial Institutions
  • Large Corporations

These entities have access to complex and higher-risk investments like venture capital, hedge funds, and angel investments. This is the reason why the accredited designation is given in the first place.

The intent of having accredited investors is to protect those less sophisticated investors and their personal assets from risk.

Accredited investors are those with sufficient financial assets to understand and take on the risks with certain investment offerings—some of them are even backed by laws.

But it helps to take note that the specific definition of accredited investor varies between countries. Not only that, but the consequences of becoming one in relation to their financial assets as well.

So what does being an accredited investor mean for those in Singapore?

How Do I Know If I’m An Accredited Investor in Singapore

As written in Section 4A Chapter 289 of Singapore's Securities and Futures Act, an accredited investor refers to:

An individual:

  • Whose net personal assets exceeds $2 million in value
  • Whose income in the preceding 12 months is not less than $300,000

A corporation:

  • With assets exceeding $10 million in value (or its equivalent in a foreign currency) or other amount as the Authority may prescribed as determined by:
    • Most recent audited balance sheet of the corporation
    • The Trustee of such trusts as the Authority may prescribe
    • Such other person as prescribed by the Authority

Overall, accredited investors are those perceived to be financially savvy or astute. For this reason, financial institutions are less strict with their requirements when dealing with these investors.

Amendment to the Securities and Futures Act

Investors wanting to gain the accreditation have to steadily follow through these requirements.

However, the parliament approves laws that include how property assets can only account for half of the total net worth of $2 million from investors.

This move by the parliament is done to better safeguard interests of retail investors and enforce powers of the Monetary Authority of Singapore (MAS).

They have implemented the changes to the Securities and Futures Act as written above.

So for an individual wanting to qualify as an accredited investor, he/she has to have assets other than the primary residence. According to the then Minister for Education, Ong Ye Kung:

“The Bill tightens the way net personal assets is calculated, such that the net equity of an individual's primary residence can only contribute up to $1 million of the $2 million threshold."

Debunking Myths about Being an Accredited Investor

Now that we’ve covered the definition and requirements of being an accredited investor in Singapore, let us now head on to the myths that cloud other perceptions views on being one.

1. Being an Accredited Investor is Savvy

Not all accredited investors know what it entails to be one. Some 'accredited investors' have acquired their wealth without ever investing or touching a single stock! These people include celebrities, successful business owners and even app developers.

Sometimes, these accredited investors are just wealthy individuals, sometimes by blood, or accredited only on paper. Not everyone is aware of pricing models or the latest trend on market bonds.

Therefore, it is always safe not to immediately assume that an accredited investor knows what he/she is doing. Take note that while many are qualified, there are only a few who are chosen for the status.

2. Being an Accredited Investor does not mean more Money

Accredited investors are given the status for a reason. And as stated in the earlier parts of this article, the intent is for them to take those high-risk bonds instead of those who are not sophisticated investors yet.

Since these are risky, there is always the option that the bonds will either gain or fail. There is no exact theory that supports how accredited investors will always make more money with their financial investment products.

What it takes to be an Accredited Investor

Besides actually satisfying the above requirements for either net worth or income and going through the Accredited Investor Declaration process, what else does it take to be an accredited investor?

After we’ve established how being an accredited investor is more than the fanciness associated with it, and not everyone is fit for the status; let us now identify what it really takes to be an accredited investor. They are as follows:

  • You have a high tolerance for risk; not only that, you must also be sufficiently qualified to manage the risk.

As you may know by now, being an accredited investor means being thrown into an ultimately different world. One that is very financially competitive.

To be able to survive, you must have a thorough understanding of what it truly takes to be an accredited investor.

  • You follow the 5% rule.

Basically, the 5% rule holds that you should not put more than 5% of your portfolio in high-risk investments. This is to ensure that you won’t lose a lot. Once you have this figured out, then you could qualify as a good accredited investor.

  • You must not be only in it for the financial gain.

Your interest and intentions must not only revolve in gaining more. You should earnestly invest because you actually believe you could help other companies.

2 thoughts on “Accredited Investor Singapore – How Do I Know I’m One of Them?”

  1. Hello! Woould you mind if I ask you a question?
    Can I use my funds ,that I showed in my personal net assets exceeding $2 million, in order to invest in projects ?

    Regards,

    Ablaikhan

    Reply
  2. 1. I would rather be a quite HNWI that an AI. Maybe you can help to write an article about HNWI. Can do, Alvin?

    2. I fully agree that we must diversify. You mentioned that one should not invest more that 5% of his portfolio in a single investment, let’s say its a stock. I have been pondering this for some time and hope to get enligthenment. Say I have $1M cash and only invest $200K (stock portfolio). The other $800K are in bonds (bond portfolio). Do I used $200K or $1M to calculate that 5% for individual stock? Hope to hear your views soon.

    Reply

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