A collective Investment Scheme is a group of investors who pool their money together and invest in securities or other assets. The investors may be individuals or organizations such as banks, pension funds, insurance companies, etc.
Collective investment schemes are regulate by SEBI under SEBI (Collective Investment Schemes) Regulations, 2002. These regulations are based on the recommendations made by the Working Group on Collective Investment Schemes set up by the Securities and Exchange Board of India (SEBI).
The purpose of the SEBI (CIS) Regulation is to provide for the regulation of collective investment schemes in order to protect the interests of investors and to ensure fair practices in their operation. This is done by prescribing certain norms for CISs including disclosure requirements, registration requirements, minimum subscription limits, and schemes permissible for CISs among other things.
Registration of Collective Investment Schemes
A collective investment scheme is a scheme that pools money from a number of investors for the purpose of investing the pooled funds in securities, property, or other assets. Such schemes are limited to certain categories of persons and can vary from being open to all investors to being closed to all but selected investors.
Under Section 10(18) of the Securities and Exchange Board of India (SEBI) Act, 1992, SEBI has given the power to make regulations for regulating the registration of Collective Investment Schemes (CIS). The SEBI (Collective Investment Scheme) Regulations, 1996 have framed by SEBI which came into force on December 23, 1996.
Before applying for registration under these regulations, an applicant must ensure that it is eligible under regulations to register as a CIS. In addition, if an applicant wishes to register its CIS as an “open-ended” scheme then it should satisfy all requirements stipulated in rule 6(6) of these regulations.
Collective Investment Scheme Participants
Collective investment schemes involve a number of participants who have a common interest in the scheme. These participants include:
- Collective Investment Management Company: Company incorporated under the Companies Act, 2013 (or earlier, the Companies Act, 1956), Company registered under the SEBI (Collective Investment Schemes) Regulations, 1999, The primary goal of this work is to set up, run, and manage a Collective Investment Scheme.
- Trustee – A trustee is appoint by the unitholders to manage their funds and assets on their behalf. Trustees can be either individuals or companies appointed under the Trustee Act 1952 or any other relevant laws governing trustees;
- Fund Manager – A fund manager is responsible for managing all aspects of the scheme including selecting and monitoring investments made by the scheme.
The following are the eligibility criteria for Collective Investment Schemes Registration:
- The company has to register with SEBI.
- It should have a net worth of INR 5 Crores or more
- Only public companies can apply for registration. Private companies or limited liability partnerships cannot apply for this scheme.
- The company should have paid-up capital of Rs.25 lakhs or above, after deducting its borrowings from its total assets. If a company has taken any loan from any financial institution, then it needs to pay interest on it at least once a year and it should repaid by one year from the date of taking the loan
- Have at least 10 investors;