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A Collective Scheme is provided under Section 11AA (2) of the SEBI (The Securities and Exchange Board of India) Act: This article describes the difference between Collective Investment Scheme and Mutual Fund.
Any arrangement offered by the Company in order to make contributions, payment made by the investor, utilized for the purpose of the scheme offered, in order to receive profits or property, from such scheme of arrangement. The contribution or investment by the investor which is a part of the scheme is managed on behalf of the investor by Collective Investment Scheme Company.
Collective Investment Scheme is offered to:
Any investment or funds not registered with the Board or deposit not covered in the above-stated points is not considered a Collective Investment Scheme. However, where any corpus more than 100 crores or more of the above deposits are regarded as Collective Investment Scheme.
As per the SEBI (Collective Investment Scheme in India) Regulations, 1999
It means any company which takes deposits under its CIS scheme should be registered with the Companies Act 2013 and is enrolled with the SEBI Act 1999 to work as Collective Investment Scheme.
Requirements for a CIS Scheme are:
Mutual Fund is the mechanism of accumulating the money from the investors by issuing units to them and investing the funds in accordance with the objectives laid down in the Offer Document.
The Mutual Fund Company is called Asset Management Company (AMC), where the combined funds are referred to as Asset under Management (AUM) which are then invested by the Mutual Fund Company expertise. The holding of the fund is called Portfolio.
The investments are made by the Company in the varied securities like stocks, shares, or bonds across a wide section of industries and sectors, where the risk is diversified, as all the stocks may not be proportion every time. The profits or losses are shared in the proportion of their investment.
A mutual fund company has to be registered under SEBI before it collects funds from the public. The following are the features of a mutual fund:
Mutual funds are the funds that were regulated by Unit Trust of India, 1963. Later, UTI was made NON-UTI. After the coming of Securities Exchange Board of India, 1992 (SEBI), the SEBI Mutual Fund regulations 1996 were laid under the Act. After this, The Association of Mutual Fund in India was established.
|1.||What Are They?||An investment scheme maintained by the bank, or UTI and offered as a retirement plan||An investment scheme maintained by the asset management company and given in most of the retirement plans and also to the general public|
|2.||Regulation||SEBI||SEBI AND RBI|
|3.||Governing Documents||Declaration of Trust and investment/operating guidelines||prospectus and statement of additional information|
|4.||Reporting||Audited Financial Statements||Annual Report|
A collective investment scheme is better on the ground of tax efficiency. A traditional Mutual Fund is taxable on both dividends and capital gain distributions if held outside the retirement plans. Both are offered for retirement plans, but the better option is CIS. CIS has lesser restrictions compared to mutual funds. In the case of the investment, the investment is made by an investor in a large number of securities. Investment can be made in complex securities with greater availability of investment.
Read our article:Collective Investment Schemes: An Overview