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Collective Investment Schemes

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What is Collective Investment Schemes?

There are several avenues for investment for a better return and collective investment scheme is one of the modes of saving among them. It serves as a flexible savings vehicle for individuals; corporate bodies etc. to add funds for future needs. It can be defined as any scheme or arrangement made or offered by any company under which the contributions or payments are made by the investors for creating a pool of money, which is then utilized for the purpose of receiving profits, income, produce and property which are then looked after by the manager on behalf of the investors. Investors do not keep any day to day control, over the management and operation of such scheme or arrangement. But in India, the definition of CIS excludes mutual fund or unit trusts.

Scheme which doesn't constitute a Collective Investment Scheme are as prescribed below

  • any scheme or arrangement made or offered by a co-operative society;
  •  any scheme or arrangement through which deposits are accepted by non-banking financial companies;
  • any scheme or arrangement being a contract of insurance;
  •  Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund;
  • Deposits which are accepted under section 58A of the Companies Act, 1956 in any scheme or arrangement
  •  any scheme or arrangement under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society;
  •  any scheme or arrangement falling within the meaning of Chit business as defined in clause (d) of section 2of the Chit Fund Act, 1982 (40 of 1982);
  •  contributions which are made in the nature of subscription to a mutual fund under any scheme or arrangement;

History of Collective Investment Schemes in India

In the 1990s, several agro-based and plantation companies in India started pooling money from people with a promise of high returns of about 18-30%. Unfortunately, neither interest nor principal has been paid by them to the investors. Therefore, the Government of India, through a press release in 1997, announced its intention of putting in place an appropriate regulatory framework of regulating such entities which issue instruments such as plantation bonds or agro-based bonds to people. It decided to treat schemes through which such instruments are issued as “Collective Investment Schemes”, which are to be regulated by SEBI. In this direction, it finally came out with the notification of “SEBI (Collective Investment Schemes SEBI) Regulations, 1999” for the regulation of CIS.

Collective Investment Management Company

Collective Investment Management Company is a company established under the provision of Companies Act,2013 (or earlier Companies Act, 1956) with a main object organizing, operating and managing a Collective Investment Scheme and get registered with SEBI under the (Collective Investment Schemes SEBI) Regulations, 1999

Procedure to get registered with SEBI as explained below:

  • Collective Investment Management Company which has obtained a certificate under these regulations shall carry on or sponsor or launch a collective investment scheme.
  • Therefore, any person thinking to start an activity as a Collective Investment Management company shall file an application to the board for registration in prescribed Form A along with a prescribed document and a non-refundable fee provided in schedule 11 of the regulations.
  • After receiving the application, the board may reject the incomplete one or the one which do not conform to the requirements specified in respective regulations. Before rejecting any such application, an opportunity shall be given to removing all discrepancies within one month. The time period can also be extended if sufficient cause is shown to the board or the board may also even direct the applicant to furnish such further information or clarification as required or even direct the person to appear in person before the Board in connection with the grant of a certificate.
  • The board shall take in view whether the eligibility criteria of the applicant is as per regulations before granting the certificate as prescribed below:
  • Applicant is registered as a company under the Companies Act, 1956 or Companies Act 2013
  • Memorandum of Association specified main object as managing collective investment scheme:
  • net worth of company should not be less than INR Five Crores;
  • fit and proper person for the grant of such certificate;
  • Applicant should have adequate   infrastructure to   enable   it   to   operate   collective investment scheme in accordance with the provision of these regulations;
  • the directors or key personnel should be the persons of honesty and integrity having adequate professional experience in related field and have not been convicted for an offense;
  • at least fifty percent of the directors of such Company shall consist of persons who are independent and are not directly or indirectly associated with the persons who have control over the Collective Investment Management Company;
  • Once the board is satisfied that applicant complies the above eligibility criteria then the applicant is intimated to pay the requisite fees. After receiving of the requisite fees, grant the certificate of incorporation in Form B.

Enterslice a legal technology company providing end to end services to the applicant who is seeking to get itself registered with SEBI under the framework of required regulations. The applicant may raise their query on our mail-id info@enterslice.com or visit our website www.enterslice.com

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