What is Collective Investment Scheme?

Collective Investment Scheme is governed by the SEBI Act under section 11AA. According to the SEBI Act if any scheme or arrangement satisfies the following conditions, it is termed as Collective Investment Schemes:

1. Any pooling by whatever name called, in the form of the contributions, or payments made by the investors and to be used for the utilized solely for the purposes of the scheme or arrangement;

2. It includes all such contributions or payments towards such scheme or arrangement by the investors with the intent of receiving the profits, income, produces or property, which can be either movable or immovable, arising out of such scheme or arrangement;

3. Pertains to all such property, contribution or investment which are forming the part of scheme or such arrangement is managed on behalf of the investors, it does not matter whether it is identifiable or not;

4. The investors are not into the day to day control over the management and operation of such scheme or arrangement.

Notification dated 18/07/2013 by SEBI:

All such non-registered, such pooled funds/schemes/arrangement of the amount of one hundred crore rupees or more, are to be deemed to be a collective investment scheme.

Exemptions:

1. Certain activities are exempted from the CIS Regulations, as given below:

2. Schemes or arrangements of a co-operative society

3. Such deposits are accepted by non-banking financial companies

4. Contract of insurance

5. Pension Scheme or the Insurance Scheme framed under the EPF

6. Such deposits which are accepted under section 58A of the Companies Act, 1956

7. Deposits accepted by a company declared as a Nidhi or a mutual benefit society

8. Schemes or arrangements of Chit business as defined in the Chit Fund Act, 1982;

9. Subscription to a mutual fund;

In simple words the CIS can be defined as the scheme wherein certain individuals come together and invest or contribute towards scheme and pool their money, in order to invest in a particular asset, and share the returns arising out of it according to the pre-agreement executed between them, wherein the proportion of it has been defined for such sharing amongst the contribution.

The units which a registered Collective Investment Management Company issues units against the funds raised from the public form a particular Scheme, these are actually the shares of that Scheme given in proportion to the contribution made by the investor. These units are mandatorily required to be listed on the stock exchange platform.

Investor Right:

1. They are entitled to receive a copy of the Balance Sheet, Profit and Loss account and a copy of the summary within two months from the closure of the financial year of the yearly appraisal report.

2. Publication about the scheme wise annual report or an abridged form, within 2 months from the date of finalization of accounts is a must condition.

3. Also, publication of scheme wise un-audited quarterly financial results in a national daily by CIMC within one month from the close of each quarter is mandatory.

4. In case a scheme fails to get registered itself with SEBI, the scheme is compulsorily required to be wind up.

Grievance Redressal:

An investor on being aggrieved by any act of the CIS owner can approach to the SEBI. It can also approach the District Consumer Redressal forums wherein there is any failure with regard to a deficiency in services.

For the matters pertaining to violation of section 1380 of the Negotiable Instruments acts, such aggrieved party shall file the criminal complaint.

Things to keep in mind:

1. In certain countries even mutual fund is included in it; however, it is excluded in India.

2. A CIS cannot launch any new scheme until and unless the certificate of registration has been issued to it by the SEBI.

3. A registered CIS is required to raise funds from the public only after its scheme has been credit rated as well as appraised by any appraising authority.