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DEEMED COLLECTIVE INVESTMENT SCHEME-Everything about the scheme

The Securities Laws (Amendment), Act 2014 states that if more than 100 crore rupees are collected from the contributors in a scheme, it shall be known as a Collective Investment Scheme. For the CISs to function, the Government of India has made it mandatory for every CIS to register with SEBI and obtain a credit rating from a verified rating agency.

Introduction

After the Securities Laws (Amendment) Act, 2014, the concept of ‘Deemed Collective Investment Scheme’ has come into effect. A proviso has been inserted after Section 11AA (1) of the SEBI Act, 1992 where any pooling of funds under any scheme or arrangement, which is not registered with the SEBI or is not covered the exemptions under Section 11AA (3), involving a corpus amount of one hundred crore rupees or more shall be deemed to be a CIS. The Sub-Section (2A) was also inserted to give retrospective effect where any scheme or arrangement made or offered by any person satisfying the conditions as may be specified in accordance with the regulations made under the SEBI Act. The SEBI has been given another additional power to make regulation[1] after the said Amendment to the fulfilment of other conditions relating to collective investment scheme under subsection (2A) of section 11AA.

After 2014, the concept of ‘Deemed collective investment Scheme’ has been also introduced in the SEBI (Collective Investment Schemes) Regulations 1999. The Amendment[2] inserted Regulation 4A where Any person proposing to carry on or sponsor or launch any scheme or arrangement which would be deemed to be a collective investment scheme under the proviso to sub-section (1) of section 11AA of the Act, shall make an application for grant of registration as a Collective Investment Management Company in Form A in the Schedule I of the Regulations. But any scheme or arrangement which is otherwise regulated or prohibited under any other law shall not be deemed to be a collective investment scheme. All other provisions of the SEBI (Collective Investment Schemes) Regulations 1999 and the guidelines and circulars issued thereunder, shall apply to any scheme or arrangement deemed to be a collective investment scheme under the provision to section 11AA(1) of the SEBI Act.

According to Section 11AA of the SEBI Act, CIS can be any kind of scheme or project which satisfies the below mentioned criterion:

The total contribution of the investors are used only for the concerned scheme;

  • The investors have made payments to the scheme hoping to receive profits on their investments;
  • The total sum of the investments is managed by the Collective Investment Management Company on behalf of the contributors;
  • The investors are in no way involved in the internal management and functioning of the scheme.

The Securities and Exchange Board of India (Collective Investment Schemes) (Amendment) Regulations, 2014 also inserted a new ‘CHAPTER IX A’ relating to “Existing Schemes or Arrangements Deemed to be a Collective Investment Scheme. According to this section any person who has been operating a scheme or arrangement deemed to be a collective investment scheme under the proviso to sub-section (1) of section 11AA of the Act at the time of commencement of the SEBI (Collective Investment Schemes) (Amendment) Regulations, 2014 shall be deemed to be an existing collective investment scheme and shall also comply with the provisions of Chapter IX Regulations. But any scheme or arrangement which is otherwise regulated or prohibited under any other law shall not be deemed to be a collective investment scheme. The expression ‘operating a scheme or arrangement deemed to be a collective investment scheme’ shall include carrying out the obligations undertaken in the various documents entered into with the investors who have subscribed to the scheme or arrangement. An existing collective investment scheme shall make an application to the Board in the manner specified in regulation 5 of the SEBI (Collective Investment Schemes) Regulations, 1999.

Existing Collective Investment Schemes

Any person who has been operating a collective investment scheme at the time of commencement of these regulations shall be deemed to be an existing collective investment scheme and shall also comply with the provisions of Chapter IX of the SEBI (Collective Investment Schemes) Regulations, 1999 which deals with ‘Existing Collective Investment Schemes’. Here the expression ‘operating a collective investment scheme’ shall include carrying out the obligations undertaken in the various documents entered into with the investors who have subscribed to the scheme[3].

The existing collective investment scheme shall not launch any new scheme or raise money from the investors even under the existing scheme unless a certificate of registration is granted under Regulation 10 of the SEBI (Collective Investment Schemes) Regulations, 1999 to it by the SEBI[4].

References:
1. Section 30 (2) (cb) of the SEBI Act, 1992
2. The Securities and Exchange Board of India (Collective Investment Schemes) (Amendment) Regulations, 2014
3. Regulation 68 of the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999
4. Regulation 69 of the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999

About the Author:-

This Article has been written by Aryan Sinha, 4th Year law (BBA+LLB(H) student at Galgotias University, Greater Noida.

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