Collective Investment Schemes

MEANING OF COLLECTIVE INVESTMENT SCHEME (CIS)

A collective investment scheme is a scheme that comprises a pool of assets that is

managed by a collective investment scheme manager and is governed by the Collective
Investment Schemes Regulations given by SEBI. Section 11AA of the SEBI Act was
amended to include a new proviso which gave SEBI the power to regulate all pooling of
funds under any scheme or arrangement in excess of Rs. 100 crores not regulated by
any other law, thus slipping into the net of a CIS.
 Collective Investment Scheme

‘Collective Investment Scheme’ means any scheme or arrangement which

satisfies the conditions specifies in section 11AA of SEBI Act, 1992.
 Section 11AA : Eligibility criteria

Sub-Section 2
Any scheme or arrangement made or offered by any person under which, —
(i) the contributions, or payments made by the investors, by whatever name called, are pooled and
utilized for the purposes of the scheme or arrangement;
(ii) the contributions or payments are made to such scheme or arrangement by the investors with a view
to receive profits, income, produce or property, whether movable or immovable, from such scheme
or arrangement;
(iii) the property, contribution or investment forming part of scheme or arrangement, whether
identifiable or not, is managed on behalf of the investors;
(iv) the investors do not have day-to-day control over the management and operation of the scheme or
arrangement.
 The following shall not be Collective Investment Scheme (CIS):
i. Made or offered by a co-operative society registered under the co- operative societies act,
1912
ii. Under which deposits are accepted by non-banking financial companies
iii. Being a contract of insurance to which the insurance act, 1938, applies;
iv. Pension scheme
v. Under which deposits are accepted under section 74 of the companies act, 2013;
vi. Under which deposits are accepted by a company declared as a Nidhi
vii. Falling within the meaning of chit business
viii. Contributions to a mutual fund
ix. Such other scheme or arrangement which the central government may, in consultation
with SEBI,
 Collective Investment Management Company

Collective Investment Management Company means a company

incorporated under the Companies Act, 1956 (now Companies Act, 2013) and
registered with SEBI under these regulations, whose object is to organize,
operate and manage a collective investment.
 Closed-ended Collective Investment Scheme

Closed-ended collective investment scheme means any collective investment

scheme in which the period of maturity of the collective investment scheme
is specified and there is no provision for re-purchase before the expiry of the
maturity of the collective investment scheme.
 Collective Investment Scheme Property

Collective investment scheme property includes:

(i) subscription of money
(ii) property acquired,
(iii) income arising, directly or indirectly from, subscription money or property
referred to in item (i) or (ii).
 REGISTRATION OF COLLECTIVE INVESTMENT
MANAGEMENT COMPANY

No person other than Collective Investment Management

Company to launch Collective Investment Scheme.
 Application for Grant of Certificate

Regulation 4 provides that any person proposing to carry any activity as a

Collective Investment Management Company shall make an application to the
SEBI for the grant of registration.
Winding up of Existing Collective Investment Scheme (CIS)

has not been granted provisional

registration by the SEBI

An existing collective investment

scheme shall wind up the existing
collective investment scheme
which

having obtained provisional

has failed to make an application
registration fails to comply with
for registration to the SEBI
the conditions of SEBI
 Grant of Certificate

SEBI may on receipt of an application and on being

satisfied that the applicant complies with the eligibility
conditions.
 Procedure where Registration is not Granted

The SEBI may reject the application after giving the applicant a reasonable
opportunity of being heard. The decision shall be communicated to the
applicant by the SEBI within 30 days of such decision stating therein the
grounds on which the application has been rejected.
 BUSINESS ACTIVITIES AND OBLIGATIONS OF COLLECTIVE
INVESTMENT MANAGEMENT COMPANY

Restrictions on Business Activities

Undertake any activity other than that of managing
the CIS.

Act as a trustee of any CIS

Launch any CIS for the purpose of investing in

securities.
Invest in any CIS floated by it.

However, it has been provided that a CMIC may

invest in its own CIS, if it makes a disclosure of its
intention to invest in the offer document of the
CIS, does not charge any fees on its investment in
that CIS.
 Obligations of Collective Investment
Management Company
Every Collective Investment Management Company should:
a.be responsible for managing the funds or properties of the CIS on behalf of the
unit holders.
b. exercise due diligence and care in managing assets and funds.
c. remain liable to the unit holders for its acts of commission or omissions.
d. appoint registrar and share transfer agents.
e. give receipts for all monies received.
f.hold a meeting of Board of Directors to consider the affairs of CIS, at least twice in
every three months.
 Submission of Information and Documents

∙ The Collective Investment Management Company should prepare quarterly reports of

its activities and the status of compliance of SEBI regulations and submit the same to
the trustees within one month of the expiry of each quarter.
∙ The Collective Investment Management Company should file with the trustees and the
SEBI, particulars of all its directors along with their interest in other companies within
fifteen days of their appointment.
∙ It should furnish a copy of the Balance Sheet, Profit and Loss Account to the unit holders
within 2 months from the closure of financial year.
 Trustees And Their Obligations

Trustee means a person who holds the property of the collective

investment scheme in trust for the benefit of the unit holders.

Eligibility for appointment as trustee

The persons registered with the SEBI as Debenture Trustee 1993 are
only eligible to be appointed as trustees of collective investment
schemes.
 Rights and Obligations of The Trustee
The trustee shall have a right
1. To obtain from the CIMC such information as is considered necessary by the trustee
2.To inspect the books of accounts and other records relating to the collective
investment scheme.
Obligations:
The trustee should ensure that the CIMC has:
(i) the necessary office infrastructure;
(ii) appointed all key personnel
(iii) appointed auditors
(iv) appointed registrars to an issue.
(v) not given any undue or unfair advantage to any associates of the company.
(vi) undertaken the activity of managing collective investment schemes only;
(vii) taken adequate steps to ensure that the interest of investors.
 Termination of Trusteeship

(a) If the trustee ceases to be trustee under SEBI (Debentures Trustees) Regulations, 1993; or
(b) if the trustee is in the course of being wound up; or
(c) if unit holders holding at least three-fourths of the nominal value of the unit capital of the
collective investment scheme pass a resolution for removing the trustee and SEBI
approves such resolution; or
(d) if in the interest of the unit holders, SEBI, for reasons to be recorded in writing decides to
remove the trustee for any violation of the Act
(e) if the trustee serves on the Collective Investment Management Company, a notice of not
less than three months expressing intention of not to continue as trustee.
If the trustee serves on the Collective Investment Management Company, a notice of not less
than three months expressing intention of not to continue as trustee
within three months from the date of termination of the previous trusteeship.
 Termination of the Agreement with the Collective Investment
Management Company
The agreement entered into by the trustee with the Collective Investment Management
Company may be terminated –
(a) if the CIMC is in the course of being wound up as per the provisions of the Companies Act,
2013 or
(b)if unit holders holding at least three-fourth of the nominal value of the unit capital of the
collective investment scheme pass a resolution for terminating the agreement with the
CIMC and the prior approval of SEBI has been obtained, or
(c)if in the interest of the unit holders, SEBI or the trustee after obtaining prior approval of
SEBI, and after giving an opportunity of being heard to the Collective Investment Management
Company, decide to terminate the agreement with the CIMC.
Another CIMC registered with SEBI, should be appointed by the trustee within three months
from the date of such termination.
 Procedure for launching of collective investment schemes

No collective investment scheme shall be launched by the Collective

Investment Management Company
∙ Unless such Collective Investment Scheme (CIS) is approved by trustee.
∙without obtaining rating from a credit rating agency.
No guaranteed returns
No collective investment scheme shall provide guaranteed or assured
returns.
 Disclosures in the offer Document

∙ The CIMC shall before launching any collective investment scheme file a copy of the
offer document of the collective investment scheme with the SEBI.
∙ The offer document should also contain true and fair view of the collective
investment scheme and adequate disclosures to enable the investors to make
informed decision.
∙ SEBI may in the interest of investors require the CIMC to carry out such modifications
in the offer document as it deems fit.
∙ In case no modifications are suggested by SEBI in the offer document within 21 days
from the date of filing, the Collective Investment Management Company may issue
the offer document to the public.
 Offer period
No collective investment scheme shall be open for subscription for more than 15 days.

Allotment of units and Refunds of Moneys

In case of oversubscription, the process of allotment of the amount oversubscribed.
∙ The CIMC should refund the application money to the applicants.
∙ if the collective investment scheme fails to receive the minimum subscription amount.
∙ Any amount refundable should be refunded within a period of 5 days from the date of
closure of subscription list.
∙ In the event of failure to refund the amounts within the period specified, the CIMC has to
pay interest to the applicants at a rate of fifteen percent per annum on the expiry of 5
working days.
 The Collective Investment Management Company should issue
Unit Certificates to the applicant whose application has been accepted, unit
certificates as soon as possible but not later than 5 days from
the date of closure of the subscription list.

A unit certificate issued under the collective investment scheme

Transfer of Units should be freely transferable.
 Investments and Segregation of Funds

(a) not invest the funds of the collective investment scheme for purposes other
than the objective of the collective investment scheme as disclosed in the
offer document.
(b) segregate the assets of different collective investment schemes.
(c) not invest corpus of a collective investment scheme in other collective
investment schemes.
(d) not transfer funds from one collective investment scheme to another
collective investment scheme.
 Listing of Collective Investment 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.
 Winding up of Collective Investment Scheme
A collective investment scheme may be wound up:
(a)on the happening of any event which, in the opinion of the trustee, requires the collective
investment scheme to be wound up and the prior approval of the SEBI is obtained; or
(b)if unit holders of a collective investment scheme holding at least three-fourth of the nominal
value of the unit capital of the collective investment scheme, pass a resolution that the scheme
be wound up and the approval of SEBI is obtained thereto; or
(c)if in the opinion of SEBI, the continuance of the collective investment scheme is prejudicial to
the interests of the unit-holders; or
(d)if in the opinion of the CIMC, the purpose of the collective investment scheme cannot be accomplished
and it obtains the approval of the trustees and that of the unit holders of the collective investment scheme
holding at least three-fourth of the nominal value of the unit capital and the approval of SEBI is obtained
thereto.
The trustee should dispose of the assets of the collective investment scheme concerned in the best interest
of the unit holders of that collective investment scheme.
 General Obligations Of Collective Investment Management Company

Maintain proper books of account and records, etc.

(1) Every Collective Investment Management Company shall-
(a)keep and maintain proper books of account, records and documents, for each collective
investment scheme
(b)intimate to the SEBI and the trustees the place where such books of account are
maintained.
(2) Every Collective Investment Management Company shall continue to maintain and
preserve, for a period of five years after the close of each collective investment scheme.
Financial year - The financial year for all the collective investment schemes shall
end as on March 31 of each year.

Dispatch of warrants and proceeds

The Collective Investment Management Company shall-
(a) Dispatch to the unit holders the warrants within 42 days of the declaration of the
interim returns.
(b)Dispatch the redemption proceeds within 30 days of the closure or the winding up of
the collective investment scheme.
 Key Aspects For Launching Collective Investment Scheme

1. The company floating CIS shall have to seek registration with SEBI as Collective
Investment Management Company (CIMC).
2. CIS shall be constituted as a two tiered structure comprising of a trust and a
CIMC.
3. At the time of application for Registration as CIMC, these entities should have a
minimum net worth of Rs. 3 crores which shall have to be increased to Rs. 5
crores within three years from the date of grant of registration.
4. Compulsory Filing of Offer Documents: Every collective investment Scheme shall
have to file offer documents with SEBI.
5. Mandatory Rating Requirement
6. No Assured Return
7. Advertisement Code
8.Subscription Period: No collective investment scheme shall be kept open for
subscription for a period of more than 15 days.
9.Duration of collective investment Schemes: The duration of the collective
investment schemes shall be for a minimum period of 3 years.
10.Listing: Units issued under the Collective Investment Schemes are to be
compulsorily listed on recognised stock exchanges.

ROLE OF COMPANY SECRETARY

To follow above aspects
 Closure of subscription list

Each collective investment scheme shall immediately after the closure of the
subscription list comply with the following conditions, namely,-

(a) minimum subscription amount of Rs. 20 crore;

(b) minimum 20 investors; and
(c) no person shall hold more than 25% of the assets under management of scheme.

However, where the collective investment scheme fails to comply with this, Collective
Investment Management Company shall be liable to refund the application money to
the applicants.
 Ponzi Scheme

A ponzi scheme is an investment from where clients are promised a large profit in short
term at little or no risk at all.