Collective Investment Scheme

COLLECTIVE INVESTMENT SCHEME is defined in SECTION 11AA OF SEBI ACT

In order to strengthen the hands of SEBI to protect interests of investors in plantation companies,

The Securities Laws (Amendments) Act, 1999 amended the definition of “Securities” in the SCRA

So as to include within its ambit the units or any other instruments issued by any CIS to the investors in such schemes, the Act also inserted a definition of the CIS in the Securities and Exchange Board of India Act, 1992.

Collective Investment Schemes means any scheme made or offered by any company under which:

• Contribution / payment-made by investors-pooled and utilised only for such scheme
• Contribution / payment- made by investors-with a view to receive profits / income / produce;
• Contribution / payment / property – managed on behalf of Investors;
• Investors do not have day-to-day control over management and operation.

Schemes or Transactions excluded from the ambit of definition of CIS:

• Scheme / Arrangement by Co-operative Society under Co-operative Societies Act, 1912.
• Deposits accepted by Non-Banking Financial Company (NBFC) under Reserve Bnak of India Act, 1934.
• Contract of Insurance under Insurance Act, 1952.
• Section 73 and 76-Deposits by Nidhi companies under Companies Act 2013.
• Chit Business under Chit Fund Act, 1982
• Subscription to Mutual Fund under SEBI (Mutual Fund) Regulations, 1996.

Collective Investment Management Company is regulated by SEBI (Collective Investment Scheme) Regulations, 1999.

SEBI (Collective Investment Scheme) Regulations, 1999 defines Collective Investment Management Company to mean a company incorporated under the Companies Act, 2013 and registered with SEBI under these regulations, whose object is to organise, operate and manage a collective investment scheme.

SEBI (Collective Investment Scheme) Regulations, 1999 – A Brief understanding of provisions:

SEBI (Collective Investment Scheme) Regulations, 1999 defines Collective Investment Management Company to mean a company incorporated under the Companies Act, 2013 and registered with SEBI under these regulations, whose object is to organise, operate and manage a collective investment scheme.

No person other than a Collective Investment Management Company which has obtained a certificate under the regulations should carry on or sponsor or launch a collective investment scheme. Any person proposing to carry any activity as a Collective Investment Management Company on or after the commencement of the regulations should make an application to SEBI for the grant of registration in the specified form. Any person who immediately prior to the commencement of the regulations was operating a scheme should subject to the provisions of the regulations make applications to SEBI for the grant of a certificate within a period of two months from such date.

SEBI REGULATIONS REGARDING CIS

• The applicant is set up and registered as a public company under the Companies Act, 2013 and has to register with SEBI as a collective investment management company.
• The applicant has, its Memorandum of Association specified the managing of collective investment scheme as one of its main objects.
• The applicant has a net worth of not less than rupees five Crores. However at the time of making the application the applicant shall have a minimum net worth of rupees three Crores which has to be increased to rupees five crores within three years from the date of grant of registration.
• The applicant is a fit and proper person for the grant of such certificate.
• The applicant has adequate infrastructure to enable it to operate collective investment scheme in accordance with the provision of these regulations.
• The directors or key personnel of the applicant should consist of persons of honesty and integrity having adequate professional experience in related field and have not been convicted for an offence involving moral turpitude or for any economic offence or for the violation of any securities laws.
•  Scheme are prohibited from guaranteeing assure returns.
• Every scheme shall obtain credit rating from a recognised Credit Rating Agency.
• Scheme shall be kept open for subscription for a maximum period of 90 days.
• Duration of schemes shall not exceed 3 years.
• All the schemes should be close ended schemes.
• The units of every scheme shall be listed immediately after the date of allotment of units and not later than six weeks from the date of closure of the scheme on each of the stock exchanges as mentioned in the offer document.

Business Activity Restrictions:

The Collective Investment Management Company should not

• Undertake any activity other than that of managing the scheme.
• Act as a trustee of any scheme
• Launch any scheme for the purpose of investing the securities
• Invest in any scheme floated by it.

However it has been provided that a Collective Investment Management Company may invest in its own scheme if it makes a disclosure of its intention to invest in the offer document of the scheme, and does not charge any fees on its investment in that scheme. A scheme should be  wound up on the expiry of duration specified in the scheme or on the accomplishment of the purpose of the scheme.