COLLECTIVE INVESTMENT SCHEMES- INVESTMENT AND SECURITIES LAW.pptx

collective investment schemes

1. COLLECTIVE INVESTMENT SCHEMES

2. 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. In simple words..

3. According to  Section 11AA of the SEBI Act , CIS is any scheme or arrangement that meets the following criteria: the contributions or payments made by the investors, by whatever name called,  are pooled and used solely for the purposes of the scheme  or arrangement; the contributions or payments are made to such scheme or arrangement by the investors with  the intention of receiving profits , income, produce, or property, whether movable or immovable, from such scheme or arrangement; the property, contribution, or investment that forms part of the scheme or arrangement is  handled on behalf of the investors , whether identifiable or not. Securities and Exchange Board of India (SEBI) Act, 1992

4. CONCEPTUAL FRAMEWORK OF CIS

5. A Collective Investment Management Company is a  business entity formed under the Companies Act of 1956 and registered with SEBI  under the SEBI (Collective Investment Schemes) Regulations of 1999 with the purpose of organizing, operating, and managing a Collective Investment Scheme. A registered Collective Investment Management Company  can establish plans to gather funds from the general public . Credit ratings and appraisals from an appraising agency are required  for such schemes. The schemes  must also be certified by the Trustee  and include disclosures that allow investors to make informed decisions, as required by the Regulations. A  copy of the scheme's offer document must be filed with SEBI , and if no changes are proposed by SEBI within 21 days after filing, the Collective Investment Management Company may disseminate the offer document to the general public for the purpose of raising money. Collective Investment Management Company

6. BUSINESS RESTRICTIONS ON CIMC

7. STRUCTURE OF CIS

8. Is CIS a PONZI Scheme?

9. SEBI’s Actio n

10. SEBI issued an order in March 2013 against the company in March 2013 directing to wind up its CIS and refund the money to its subscribers. SEBI barred the company and its directors from the securities market till the time all its CIS were wound up and decided to initiate prosecution proceedings against them. Charges like offences of fraud, cheating, criminal breach of trust and misappropriation of public funds have been filed. Securities Appellate Tribunal (hereinafter referred to as “SAT”) upheld the SEBI order against SAT Maitreya Service Private Limited

11. The Company accepted contribution from investors for collective utilization and pooled the investment with the object of carrying out the overall scheme/ arrangement because the Company had the discretion to allot such area in its project as it considered appropriate. Further, under a conveyance deed the area of plot for each individual was denoted as ‘proportionate undivided interest’. The purchaser was thus not entitled to claim division and/or partition of the said proportionate undivided interest. The purchasers could not either interfere with the working, managing, controlling and supervising of the said plot in any manner whatsoever. This in SEBI’s view, were not limbs of a buy-sell arrangement, but a pooling of money pursuant to a scheme or arrangement. Based on these findings, SEBI concluded that the company’s activity were in the nature of a CIMC and held it to be in violation of the Regulation as the company didn’t have the requite approvals from SEBI. SEBI accordingly passed directions to the Company and its directors to wind up the existing Scheme and further ordered the Company to refund all the collected money. SAT confirmed SEBI’s finding and upheld the SEBI order under appeal which was made by the Company and its directors, by adopting the reasoning similar to that provided by SEBI in the SEBI order. Alchemist Infra Realty Limited

12. The following do not qualify as a CIS: any scheme or arrangement developed or offered by a  co-operative society ; any scheme or arrangement under which  non-banking financial companies  accept deposits; any scheme or arrangement providing for any Scheme, Pension Scheme, or Insurance Scheme framed under the  Employees Provident Fund and Miscellaneous Provisions Act, 1952 ; any scheme or arrangement in which deposits are accepted under section 58A of the  Companies Act, 1956 ; any scheme or arrangement in which deposits are accepted by a company declared as a   Nidhi or a mutual benefit society  under section 620A of the Companies Act, 1956. any scheme or arrangement falling within the meaning of  Chit business  as defined in the Chit Fund Act, 1982. any scheme or arrangement under which contributions made are in the nature of  subscription to a mutual fund . Schemes that are not treated as CIS

13. Unit Trusts OEICs ETFs Investor Considerations CIFs and Alternative Investment Vehicles The Unregulated Domain Investment Decisions TYPES OF CIS AND INVESTOR CONSIDERATIONS

14. Diversification of market techniques and investment types  is aided by Collective Investment Schemes (CIS). Collective Investment Schemes (CIS)  allows to receive the return money quickly and at market-related pricing . One will  receive regular updates  on the value of the investment and may be able to acquire information about the Collective Investment Scheme's specific investments. Within two months of the financial year's end,  investors are entitled to a copy of the Balance Sheet, Profit and Loss Account , and a copy of the summary of the yearly appraisal report from CIMC. Moreover, the  scheme-by-scheme annual report, or a shortened version of it, must be published in a national daily  as soon as feasible but no later than two months after the accounts are finalized. BENEFITS OF CIS

15. The  management and functioning  of such a scheme or arrangement are not within the control of investors on a day-to-day basis. More than 500 companies in the country are estimated to have engaged in  CIS activities without complying with SEBI . In most cases, the operators of such schemes promise high profits, in the beginning, to entice unwary investors, only to  vanish after a short period of time , leaving their victims in the dark. Then, before coming under the SEBI scanner, they  relaunch similar firms  under a different name and defraud even more investors. SEBI, as a regulatory authority, cannot guarantee or take responsibility  for the repayment of funds to investors. Problems of Collective Investment Scheme

16. OSIANS CONNOISSEURS OF ART PRIVATE LIMITED VS SEBI & ANOTHER (2020) 16 SCC 745

17. CONCLUSION