Definition & Eligibility Criteria of Collective investment scheme

A Collective Investment Scheme is an investment scheme where various individuals come together and pool their money in order to invest their whole fund collection in a selective asset. The revenues and profits flowing from this venture would be shared as per the agreement finalized amongst the investors prior to the act. Collective Investment Schemes, on a global scale, have broader connotations which include mutual funds as well. However, the Schemes, as prescribed in Section 11AA of the SEBI Act of 1992, excludes mutual funds and other schemes in India. The Securities Exchange Board of India regulates them under the SEBI (Collective Investment Scheme) Regulations of 1999.

A Collective investment scheme is any scheme or arrangement, which meets the conditions, introduced to in sub-section (2) of section 11AA of the SEBI Act. Any scheme or regularity made or offered by any company under which the grants, or payments made by the investors, are pooled and utilized to receive profits, income, produce or property, and is managed on behalf of the investors is a CIS. Investors do not have the day to day control over the management and operation of such a scheme or arrangements.

Eligibility for Collective Investment Scheme Registration

The following are the eligibility criteria to register for collective investment schemes.

• The applicant should be set up and registered as a company under the Companies Act of 1956.
• The applicant has defined the management of collective investment schemes as one of the main objects in its Memorandum of Association.
• The applicant is fit and proper as an individual for the grant of such a certificate of registration.
• The applicant has a net worth of INR 5 Crores or more. However, this is under the condition that, at the time of making the application, the applicant shall have a minimum net worth of INR 3 Crores which shall increase to INR 5 Crores within 3 years from the date of grant of registration.
• The applicant has adequate infrastructure in order to enable it to operate collective investment schemes in accordance with the provision of the relevant regulations.
• A minimum of 50% of the directors of such Collective Investment Management Companies shall consist of individuals who are independent and are not directly or indirectly associated with the individuals who have control over the concerned Collective Investment Management Company.
• The directors/ key personnel of the applicant shall consist of individuals of honesty and integrity with adequate professional experience in the related field. They must not have been convicted for an offense involving moral turpitude, any economic offense or for the violation of any securities laws.
• No individuals, directly or indirectly connected with the applicant, has been refused registration by the Board under the Act in the past.

A registered Collective Investment Management Company is eligible to raise funds from the public for a particular Scheme and in turn, issues them what are called “units” (which are essentially shares of that Scheme given in proportion to the contribution made by the investor). These units, by law, have to be compulsorily listed on the stock exchange platform.

Also, Read Redressal Mechanism and Penalty Provisions against Collective Investment Management Company (CIMC).