Collective Investment Scheme Registration

‘Many hands make light work’ is a proverb most of us are undoubtedly familiar with. Ideally, this means the coming together of people for a cause. It wouldn’t be entirely wrong to speculate that the Collective Investment Scheme was born bearing in mind principles of a similar nature. In simple words, a collective investment scheme is where a group of people come together and pool their money into an asset. The returns earned on the asset is then divided amongst the group based on the proportion of their investment.

Collective Investment Scheme

Section 11AA (2) of the Securities and Exchange Board of India (SEBI) Act, 1992 states that any scheme or arrangement made or offered by any company under which the contributions or payments made by investors are pooled together with the objective of receiving income, profits, produce or property and is managed on behalf of the investors is called a Collective Investment Scheme. CIS is an arrangement or scheme which should satisfy the following conditions:

• Individuals pool their money together to invest in a particular asset or assets.
• The objective – Earn returns on the money so invested.
• Returns so earned are divided between the investors based on the agreement signed by them at the time of making the investment.
• Control of the operations of the scheme and its management is not in the hands of the investors.

Deemed Collective Investment Scheme

The SEBI Ordinance, 2013, stated that any scheme or arrangement which is not registered with the SEBI, under which there is any pooling of funds where the corpus amounts to one hundred crore rupees or more, shall be deemed to be a Collective Investment Scheme.

What Does Not Constitute a Collective Investment Scheme?

Any scheme or arrangement:

• Being an insurance contract and to which the Insurance Act applies.
• Under which deposits are accepted by NBFCs (Non-Banking Financial Companies).
• Made by a Co-operative Society or a Society registered under the Societies Act.
• Under which the contributions thus made are in the nature of subscription to a mutual fund.
• Providing for any Scheme, Pension Scheme or the Insurance Scheme framed under the Employee Provident Fund and Miscellaneous Provisions Act, 1952.
• Falling within the meaning of Chit business, so defined under Section 2 (d) of the Chit Fund Act, 1982.
• Under which the deposits are accepted under Section 73 to 76 of the Companies Act, 2013.

Collective Investment Scheme Participants

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 sole objective is to organise, operate and manage a Collective Investment Scheme.

Trustee

As per the Collective Investment Scheme Regulations, 1999, it is imperative that the CIS is constituted in the form of a Trust. The Trustee observes the rules and regulations set in place and works for the benefit of the unit holders, safeguards the assets and ensures that it stays compliant throughout. It is the Collective Investment Management Company that appoints the Trustee who holds the property of the CIS.

Fund Manager

As the name suggests, the fund manager is the one that manages the funds of the CIS and oversees and manages all the investment decisions of the CIS. The fund manager also performs the following functions:-

• Unit pricing of the scheme.
• Valuation of the scheme.
• Managing the portfolio of the scheme.

Shareholder

Also known as unit holders, these are the individuals that pool in their money into the scheme. As a result, they have a right to receive the returns generated on their investment as well as the right to the asset to the extent of their share and on the basis of the agreement signed at the time of entering into the scheme.

Eligibility For Registration of Collective Investment Management Company

• Registered as a company under the Companies Act, 1956.
• One of the main objects of the company in its Memorandum of Association must be management and operation of the Collective Investment Scheme.
• The networth has to be at least five crore rupees. However, the networth has to be at least 3 crore rupees at the time of making the application, which should be not less than five crore rupees within 3 years from the date of approval of registration.
• Adequate infrastructure is in place in order to carry out the operation of the collective insurance scheme as per the applicable provisions.
• The persons who hold the office of directorship are persons of integrity, honesty and stature, possessing a wealth of experience in the relevant areas, and more importantly, have not been convicted of any offence involving moral turpitude or any other offence or any violation of the law.
• At least half the directors in the Collective Investment Management company should be independent directors.
• No individual, connected directly or indirectly, has been refused registration in the past by the SEBI.

The application for grant of registration with the SEBI has to be furnished in Form A with the necessary documents and the prescribed fees.

Eligibility For Appointment as a Trustee

• Any person who is registered with the Board as a Debenture Trustee under the SEBI (Debenture Trustee) Regulations, 1993, is eligible to be chosen a Trustee of the CIS.
• Form C shall be submitted by the Collective Investment Management Company to the Board with regard to the Trustees so appointed.
• The person to be appointed as a Trustee cannot be directly or indirectly associated with the persons who possess control over the company.

Approval and Rejection of the Application for Registration

Where the Board is of the opinion that the application is complete in all respects and that the applicant fulfils the eligibility criteria, an intimation will be made to the applicant for the payment of the fees. Once the fees have been paid and duly received, the Board will grant the Certificate of Registration. 
 

Where the Board is of the opinion that the application does not quite measure up to the criteria, it may reject the application. However, before rejecting the application, a time period of one month may be given to the applicant to sort out all the discrepancies in the application. Once the Board is satisfied that the application is complete, it may consider the same for approval. 
 

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