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Collective Investment Scheme (CIS)

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A Collective Investment Scheme (CIS), as its name suggests, is an investment scheme wherein several individuals come together to pool their money for investing in a particular asset(s) and for sharing the returns arising from that investment as per the agreement reached between them prior to pooling in the money. The term has broader connotations and includes even mutual funds. For instance, in UK, the unit trust scheme is a collective investment scheme. However, in India, as in US, the definition of CIS excludes mutual funds or unit trust schemes etc and is given a strict definition in Section 11AA of the SEBI Act, 1992. CISs are regulated by the securities market regulator – SEBI - under SEBI (Collective Investment Scheme) Regulations, 1999.


According to Section 11AA of the SEBI Act, CIS is any scheme or arrangement, which satisfies the following conditions:

  1. the contributions, or payments made by the investors, by whatever name called, are pooled and utilized solely for the purposes of the scheme or arrangement;
  2. 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;
  3. the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors;
  4. the investors do not have day to day control over the management and operation of the scheme or arrangement.


Through the SEBI ordinance dated 18th July 2013, which subsequently became an Act of Parliament in 2014 - The Securities Laws (Amendment) Act, 2014- any pooling of funds under any scheme or arrangement, which is not registered with SEBI, involving a corpus amount of one hundred crore rupees or more shall be deemed to be a collective investment scheme.


However, as per the SEBI Act, the following activities have been exempted from the CIS Regulations. Any scheme or arrangement:

  1. made or offered by a co-operative society
  2. under which deposits are accepted by non-banking financial companies
  3. being a contract of insurance
  4. providing for any scheme, Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund
  5. under which deposits are accepted under section 58A of the Companies Act, 1956
  6. under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society
  7. falling within the meaning of Chit business as defined in clause (d) of section 2 of the Chit Fund Act, 1982(40 of 1982);
  8. under which contributions made are in the nature of subscription to a mutual fund;

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.


The FAQs on CIS may be seen at http://www.sebi.gov.in/faq/cis_faq.html

Even though SEBI had received complaints against over 660 entities, only one entity is formally registered as a CIS with SEBI; however no scheme has been known to be launched by this entity till date. In view of the same, SEBI has taken initiatives (Ordinance of 2013) to prune the definition of CIS accordingly.

The SEBI website reflects the status of the CIS cases. Such status includes name of accused (directors/ promoters), court case no., court name, date of filing of court case for these entities. This information is available at the link:

http://www.sebi.gov.in/sebiweb/home/document_detail.jsp?link=http://www.sebi.gov.in/cms/sebi_data/docfiles/21678_t.html

In addition to this, the court judgment details (along with a copy of the final court orders) are also available on the SEBI website. This information is available at the link:

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1315992946034.pdf


History of CIS in India

In 1990s there were various instances of collection of money by numerous agro-based and plantation companies, which eventually failed to provide any return on the investments (despite promising around 18-30% returns) including the repayment of principal amount. In this context, the Government of India, vide its press release dated November 18, 1997, decided that an appropriate regulatory framework for regulating entities which issue instruments like agro bonds, plantation bonds etc., will be put in place. The government decided that the schemes through which such instruments are issued would be treated as "Collective Investment Schemes" (CIS) coming under the provisions of the SEBI Act.


Accordingly, SEBI vide its press release dated November 26, 1997 and December 18, 1997, prohibited collective investment schemes from sponsoring any new scheme till the CIS regulations are notified. The press releases further stated that instruments such as agro bonds, plantation bonds would be treated as CIS coming under the SEBI Act, 1992. All the companies having such activities were required to file information with SEBI. Moreover, general public was also informed that no person can sponsor or cause to be sponsored any new collective investment scheme and thereafter raise further funds.


Meanwhile, a committee was formed under Dr. S.A. Dave to examine and finalize the draft regulations for CISs. The committee submitted its report on 5th April 1999.


Subsequently, the notification of SEBI (Collective Investment Schemes) Regulations 1999 was issued on October 15, 1999. As per the CIS regulations, any person who has been operating a Collective Investment Scheme at the time of commencement of the CIS Regulations was required to make an application to SEBI for the grant of registration under the provisions of the Regulation, within a period of two months from the date of the notification. In case, such an application is rejected, the entity was required to wind up its existing schemes in the manner as specified in the Regulations. No entity was / is allowed to run a CIS scheme without obtaining the Certificate of Registration from SEBI.


In 2013, in the backdrop of Sahara / Sharada scams, SEBI modified the definition of CIS to include any scheme / arrangment floated by any person (instead of a company as was defined earlier); and any such scheme with corpus of more than Rs. 100 Crore shall also be deemed to be a CIS by SEBI.

Union Budget 2016-17 has proposed a Comprehensive Central legislation to deal with Illicit Deposit Taking schemes. State Level Coordination Committee (SLCC) were constituted in May 2014 and is the joint forum formed in all States to facilitate information sharing among the Regulators viz. RBI,SEBI,IRDA,NHB, PFRDA, Registrar of Companies (RoCs) etc. and Enforcement Agencies of the States viz Home Department, Finance Department, Law Department, Economic Offences Wing (EOW) etc., with the objective to control the incidents of unauthorized acceptance of deposits by unscrupulous entities. SLCC has taken the initiative to launch a website "Sachet" on 4 August 2016 to curb illegal collection of deposits.Here citizens can obtain information regarding entities that are allowed to accept deposits, lodge complaints and also share information regarding illegal acceptance of deposits by unscrupulous entities.


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