Collective investment scheme companies in India
A Collective Investment Scheme (CIS) is a collective investment vehicle that pools funds from investors and invests them in a variety of securities, including stocks, bonds, and money market instruments. A CIS can register as a mutual fund, unit trust, or offshore fund. Typically, the fund manager is responsible for investing all of the money contributed by investors in accordance with the fund’s investment objective. The investment manager may choose to delegate all or some of this decision-making authority to sub-managers who manage the investments on behalf of the fund manager.
In India, there are two types of collective investment schemes:
- Mutual Fund Schemes – Mutual Funds allow investors to pool their resources and invest in a variety of securities such as stocks, bonds, and money market instruments. These funds are manage by professional fund managers who invest the pooled funds in accordance with their investment objectives.
- Unit Trust Schemes – Unit Trusts offer fixed returns over a specified period of time (typically one year). While Unit Trusts do not allow investors to withdraw their money before maturity, they do offer flexibility to redeem units within the first 3 years at par value only if they have not made any withdrawals during that period.
Collective Investment Scheme Participants
The following are the major participants of collective investment schemes.
- Collective Investment Management Company
- Fund Manager
Rules and Regulations for Collective Investment Scheme Companies
- The minimum paid-up capital required for registration of a Collective Investment Scheme (CIS) Company is Rs.3 crore
- The maximum subscription during the initial offer period should not exceed twenty times of the net worth of the company at the time of such offer.
- The minimum number of subscribers for an offer is five and the maximum is fifty at any one time during the offer period.
- An initial issue of securities by an issuer shall be made either by way of public issue or private placement as per regulations made under Section 15(3) read with Section 15(5) of SEBI Act, 1992 which inter alia provides that any securities issued by an issuer shall be offered to all persons resident in India who have a net worth of not less than rupees five lakhs and such persons can subscribe to such securities only through banks, stock exchanges or any other registered depository participant (DP).
- In case there are more than twenty applicants having a net worth of not less than rupees five lakhs, then such applicants may be allowed to subscribe through DP’s as well as banks/stock exchanges without any upper limit on the number of applicants per bank/stock exchange/DP
- The collective investment scheme company must comply with the provisions of the Collective Investment Scheme Act, 2008 (CISA).
- The collective investment scheme company must also comply with the provisions of the Companies Act, 2013 (Act) and any other law for the time being in force applicable to it.
- A collective investment scheme company shall not issue any advertisement or invitation document that suggests or promises outsize returns on deposits made by members in its schemes without having a sound basis for such representations in terms of its track record, performance history, and other relevant factors.
- It is mandatory for a collective investment scheme company to obtain registration from SEBI as an asset management company (AMC) before it can commence operations as an AMC.
- In order to obtain registration as an AMC, an applicant is require to fulfill certain eligibility conditions set out in Rule 3(1)(i) of the Securities and Exchange Board of India (Sub-Accounting) Regulations, 2018 (SARB).