Introduction of Collective Investment Schemes :
A collective investment scheme is a trust based scheme that comprises a pool of assets that is managed by a collective investment scheme manager and is governed by the Collective Investment Schemes Regulations given by SEBI. Collective Investment Schemes (CIS) are a popular form of investment, and they are accessible to all. Each investor has a proportional stake in the CIS portfolio based on how much money he or she contributed. The word ‘unit’ refers to the portion or part of the CIS portfolio that is owned by the investor. The ‘trust’ is the financial instrument that is created in order to manage the investment. The trust enables financial experts to invest the money on behalf of the CIS investor. Collective Investment Schemes provide a relatively secure means of investing on the Stock Exchange, and other financial instruments. The sum of money that are exchanged on the Stock Exchange and in the Money Markets make them too pricey for most people. With a CIS, the money or funds from a group of investors are pooled or collected together to form a CIS portfolio.
In order to strengthen the hands of SEBI to protect interests of investors in plantation companies, the Securities Laws (Amendment) Act, 1999 amended the definition of ’securities’ in the SC(R) Act, so as to include within its ambit the units or any other instruments issued by any CIS to the investors in such schemes. The Act also inserted a definition of the CIS in the Securities and Exchange Board of India Act, 1992.
The International Organisation of Securities Commission (IOSCO) in its Report on Investment Management of the Technical Committee defined a Collective Investment Scheme (CIS) as an open ended collective investment scheme that issues redeemable units and invests primarily in transferable securities or money market instruments.
According to SEBI Act, 1992, ‘Collective Investment Scheme’ means any scheme or arrangement which satisfies the conditions specifies in section 11AA.
Section 11AA provides that any scheme or arrangement which satisfies the conditions referred to in sub-section (2) or sub-section (2A) shall be a collective investment scheme.
Provided that any pooling of funds under any scheme or arrangement, which is not registered with SEBI or is not covered under sub-section (3), involving a corpus amount of one hundred crore rupees or more shall be deemed to be a collective investment scheme.
Sub-section (2) lays down that any scheme or arrangement made or offered by any person under which,—
(i) the contributions, or payments made by the investors, by whatever name called, are pooled and utilized for the purposes of the scheme or arrangement;
(ii) the contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable, from such scheme or arrangement;
(iii) the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors;
(iv) the investors do not have day-to-day control over the management and operation of the scheme or arrangement.
Sub-section 2A provides that any scheme or arrangement made or offered by any person satisfying the conditions as may be specified in accordance with the regulations made under this Act.
(3) Notwithstanding anything contained in sub-section (2) or sub-section (2A) any scheme or arrangement –
(i) made or offered by a co-operative society registered under the Co-operative Societies Act, 1912 or a society being a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State;
(ii) under which deposits are accepted by non-banking financial companies as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934;
(iii) being a contract of insurance to which the Insurance Act, 1938, applies;
(iv) providing for any Scheme, Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund and Miscellaneous Provisions Act, 1952;
(v) under which deposits are accepted under section 74 of the Companies Act, 2013;
(vi) under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society under section 406 of the Companies Act, 2013;
(vii) falling within the meaning of Chit business as defined in clause (d) of section 2 of the Chit Fund Act, 1982;
(viii) under which contributions made are in the nature of subscription to a mutual fund;
(ix) such other scheme or arrangement which the Central Government may, in consultation with SEBI, notify,
shall not be a collective investment scheme.