A Collective Investment Scheme (CIS) is an investment scheme offered by any company under which the payments made by the investors are pooled and used with an objective to get profits, income and then, is managed on behalf of the investors. A CIS includes mutual funds, exchange-traded funds (ETFs), hedge funds, and private equity funds. Depending on the CIS fund's investment objectives, these schemes offer investors the potential for capital appreciation and income generation.
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The Collective Investment Scheme definition is an investment method where groups of individuals pool their money together and invest it in different best investment options, like:
With CIS, you can access a wider range of investment options and reduce the risk of losing all your money on just one investment.
The primary purpose of a CIS is to provide individuals with access to a diversified portfolio of investments that may be challenging or costly to achieve individually.
This scheme is managed by professional fund managers who make investment decisions on behalf of the investors. Each investor owns units or shares in the scheme, proportionate to their investment amount.
SEBI regulates Collective Investment Schemes in India
The SEBI (Collective Investment Schemes) Regulations, 1999, and subsequent amendments define the participants' roles and responsibilities.
Some examples of a Collective Investment Scheme SEBI are as follows:
Exchange-Traded Funds (ETFs)
Real Estate Investment Trusts (REITs)
Private Equity Funds
The key features of a Collective Investment Scheme SEBI are listed below:
Pooling of Funds: CIS allows pooling together funds from multiple investors who hold relatively smaller amounts of money. It helps them to invest collectively in a diversified portfolio of assets, which may not be accessible to them individually
Professional Management: Professional fund managers manage CIS. These professionals analyse market trends, conduct research, and select suitable investments aligned with the scheme's objectives
Diversification: This scheme provides investors with access to a diversified portfolio of investment asset classes, sectors, or geographic regions. Portfolio diversification helps mitigate the impact of poor performance in any one investment on the overall portfolio
Ownership through Units or Shares: Investors in a Collective Investment Scheme own units or shares that represent their proportionate ownership in the scheme. The value of these units or shares is directly linked to the performance of the underlying assets. Investors can buy or sell units/shares, allowing for liquidity and flexibility in managing their investments
Transparent Reporting: CIS typically provides regular reports to investors, disclosing the scheme's financial information, performance, and holdings. This transparency helps investors monitor their investments and make informed decisions
Regulatory Oversight: CIS is subject to regulatory oversight in most jurisdictions. Regulatory authorities impose rules and regulations to protect investors' interests, ensure transparency, and promote fair practices in the operation and management of collective investment schemes
Investment Objectives and Strategies: Each CIS has its investment objectives and strategies. Some schemes focus on capital appreciation, aiming for long-term growth. Other plans emphasise on generating income through dividends or interest payments. The scheme's investment strategy outlines the types of assets it invests in and the risk profile it maintains
Accessibility and Affordability: CIS offers access to investment opportunities that may otherwise be challenging for individual investors to access or afford. By pooling funds, investors can benefit from economies of scale, professional management, and reduced transaction costs.
A Collective Investment Scheme SEBI does not include the following categories of schemes:
Any scheme/ arrangement made available by a co-operative society or by a society that is registered or presumed to be registered under any current State law relating to co-operative societies;
A scheme/ agreement under which non-banking financial companies take deposits;
Any scheme/ arrangement that is an insurance contract to which the Insurance Act applies;
Any Plan, Pension Plan, or Insurance Plan that is outlined in the Employees Provident Fund and Miscellaneous Provisions Act of 1952;
Any scheme or arrangement that accepts public deposits under Section 58A of the Companies Act of 1956 (1 of 1956);
Any scheme or arrangement whereby a business certified to be a mutual benefit society or Nidhi under section 620A of the Companies Act, 1956 (1 of 1956) accepts deposits;
Any scheme or arrangement that satisfies the criteria for chit business under Section 2(d) of the Chit Fund Act of 1982 (40 of 1982);
A scheme or arrangement in which payments are made in the form of subscriptions to mutual funds;
In India, the participants in a Collective Investment Scheme (CIS) can include various entities and individuals. Here are the common participants involved in a CIS:
|Asset Management Company (AMC)||
|Registrar and Transfer Agent (RTA)||
SEBI defines the eligibility criteria for a Collective Investment Scheme in India. Some of the essential eligibility criteria to join a CIS is as follows:
The sponsor should be a corporate body under any of the following-
Registered under the Companies Act, 2013
Limited Liability Partnership (LLP)
It should have the necessary legal status to establish and manage the CIS.
The sponsor should have a minimum track record of 5 years in the financial services business
This ensures that the sponsor has relevant experience and a proven track record in handling financial matters
The sponsor should have a minimum net worth of Rs. 5 crores
This requirement ensures that the sponsor has sufficient financial stability to support the establishment and management of the CIS
The sponsor, trustees, and directors of the AMC should have a good reputation, be of sound mind, and not have been convicted of any economic offences or regulatory violations
The fit and proper criteria ensure that only individuals with integrity and competence are involved in managing the CIS
The CIS, along with its Sponsor and AMC, should obtain registration from SEBI
The registration process involves submitting the necessary application forms, documents, and fees to SEBI
The CIS, its Sponsor, and AMC must adhere to investment limits, disclosure requirements, valuation norms, and reporting obligations
They must comply with the investor protection measures specified by SEBI
The CIS should appoint trustees who are independent of the sponsor and the AMC
The trustees should obtain prior approval from SEBI for their appointment and should have the necessary qualifications and experience to fulfil their responsibilities
The assets of the CIS should be valued periodically in accordance with the valuation norms prescribed by SEBI.
The valuation should be fair, transparent, and based on reliable methods to ensure accurate calculation of the net asset value (NAV) of the scheme
A Collective Investment Scheme (CIS) in India is a regulated investment vehicle that pools funds from multiple investors to invest in a diversified portfolio of securities or other assets. The CIS operates under the rules and regulations set by the Securities and Exchange Board of India (SEBI) to ensure investor protection, transparency, and compliance. It allows individuals and institutions to access professional investment management, diversification, and potential returns while adhering to regulatory requirements.
Mutual Funds: Mutual funds pool money from multiple investors to invest in a diversified portfolio of securities. Professional fund managers make investment decisions for mutual funds on behalf of the investors.
Exchange-Traded Funds (ETFs): ETFs are investment funds that trade on stock exchanges, similar to individual stocks. They represent a basket of securities such as stocks, bonds, or commodities and aim to track the performance of a specific index or sector.
Unit Investment Trusts (UITs): UITs are investment vehicles that pool funds from investors to purchase a fixed portfolio of securities. The assets are typically not managed actively. The securities held in UITs have a specified maturity date, after which the trust is dissolved, and the assets are liquidated and distributed to the investors.
It involves cooperation between separate entities that join together to jointly invest in a project, usually to share risks, costs, and potential profits.
Under competition law, collective investment schemes are scrutinised to ensure compliance with antitrust regulations.
The main functions of a CIMC include the following:
Portfolio management of the investors
Administration of the CIS Fund
Compliance and regulatory oversight over the CIS
Providing investor services like account management, investor communications, and addressing investor queries
Under the SEBI (Collective Investment Schemes) Regulations, 1999, a CIS can raise further funds by either:
Making a public offer: This involves issuing new units to the public. The CIS must first obtain a fresh certificate of registration from SEBI before making a public offer.
Making a private placement: This involves issuing new units to a limited number of investors. The CIS does not need to obtain a fresh certificate of registration from SEBI to make a private placement.
Investors buy units or shares in the scheme and receive a proportionate number of units based on their investment. They can buy or sell units on a daily basis. The scheme charges fees to cover management costs. Regular reports and disclosures are provided to investors.
Determine the jurisdiction where you plan to establish and operate the scheme.
Engage legal and financial professionals experienced in securities laws and regulations.
Prepare documentation such as a prospectus or offering memorandum.
Conduct due diligence on the investment manager or management team.
Ensure compliance with applicable regulatory requirements.
Submit the completed registration application and supporting documents.
The regulatory authority will review the application and may request additional information.
If approved, the scheme will be registered and can legally operate.
Ongoing compliance with regulatory obligations is necessary after registration.
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