What is an Accredited Investor?

Question: What is an Accredited Investor?

Some investment partnerships and funds are only available to so-called "accredited investors". Just what is an accredited investor and how do you know if you qualify?

Answer: According to the public domain information published by the Securities and Exchange Commission, an accredited investor is defined in Rule 501 of Regulation D as:

1. "A bank, insurance company, registered investment company, business development company, or small business investment company;
2. an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
3. a charitable organization, corporation, or partnership with assets exceeding $5 million;
4. a director, executive officer, or general partner of the company selling the securities;
5. a business in which all the equity owners are accredited investors;
6. a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase;
7. a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
8. a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes."

Why Are Some Investments Only Available To Accredited Investors?"

Quite simply, it comes down to convenience and privacy for the investment managers. By marketing securities only to accredited investors, a fund or company can avoid many of the filing requirements to which most public companies are subjected.

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