What Is An Accredited Investor and How Do I Know If I’m One Of Them?

Author: | Date:

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

One of those who help establish that is the increasing number of high networth individuals. This has then spun a financial status that people may want to subscribe: 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.

The charm is slowly dying out due to the potential risks attached to it.

For those of you who are still new to this, it helps to back yourself with important information before 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 us first tap on the definition of accredited investor.

quote-left

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 from risk.

Since 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 as well.

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

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

As written in Section 4A Chapter 289 of the Securities and Futures Act, an accredited investor means:

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 steadily followed 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 that other than the primary residence. According to the Minister for Education, Ong Ye Kung:

quote-left

“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 is entailed to be one. Some of them are those who have acquired their wealth without ever touching a single stock such as celebrities, successful business owners, app developers.

Sometimes, these accredited investors are just wealthy individuals, sometimes by blood, and accredited only on paper. Not everyone is aware with the 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, then 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 products.

What it takes to be an Accredited Investor

Besides actually going through the Accredited Investor Declaration process to be one after satisfying the above requirements for either networth or income, what else does it take mentally?

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 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.

The following two tabs change content below.
Co-Founder. Believer of the Factor-based Investing approach. Running a Multi-Factor Portfolio that taps on the Value, Size, Profitability and Momentum Factors. Quant at heart. Believe the financial industry can treat their customers better. Wants to change the world.
  • 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

  • 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.

  • >