At the time of commencement of CIS Regulations i.e. (October 15, 1999), entities operating a collective investment scheme are deemed to be an existing collective investment scheme.

SEBI does not ensure the refund of money invested in defaulting entities registered before October 15, 1999.

By any means the undermentioned do not constitute a CIS where any scheme or arrangement

• Made or offered by a co-operative society or a society being a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State
• BeinUnder which deposits are accepted by non-banking financial companies.g a contract of insurance to which the Insurance Act, applies.
• Providing for any Scheme, Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund and Miscellaneous Provisions Act, 1952.
• Under which deposits are accepted under section 58A of the Companies Act, 1956 (1 of 1956).
• Under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society under section 620A of the Companies Act, 1956 (1 of 1956).
• Falling within the meaning of Chit business as defined in clause (d) of section 2of the Chit Fund Act, 1982 (40 of 1982).
• Under which contributions made are in the nature of subscription to a mutual fund.

Registered with SEBI under the SEBI (Collective Investment Schemes) Regulations, 1999 and incorporated under the provisions of the Companies Act, 1956 whose object is to organise, operate and manage a Collective Investment Scheme forms a Collective Investment Management Company.

These companies can raise funds from the public by launching schemes which has to be credit rated and appraised by appraising agencies. It also has to be approved by the Trustee and contain disclosures according to the Regulations to enable investors to make informed decision. The offer document to the public is issued after 21 days of filing document to SEBI and in return no modifications are suggested by SEBI.

The CIS cannot do such.

SEBI is not responsible either for the financial soundness of any scheme for which the offer document has been filed or for the correctness of the statements made or opinions expressed in the offer document. CIMC has to ensure the disclosures.

FAQs on Collective Investment Schemes

What is the procedure for winding up of an existing Collective Investment Scheme?
Existing CIS has to send an information memorandum to the investors who have subscribed to the schemes, detailing the state of affairs of the scheme, the amount repayable to each investor and the manner in which such amount is determined.

This information memorandum has to be signed with date by all the Directors of the scheme. The information memorandum has to state that investors desirous of continuing with the scheme will have to give a positive consent, within 30 days from the date of the information memorandum, to continue with the scheme.

If positive consent is not received from more than 25% of total existing investors, the scheme will wound up and payment made within three months to investors from the date of the information memorandum.

Is there some institution, which guarantees repayment of money now?
No. SEBI do not guarantee or undertake repayment to the investors.

Whom to approach for Grievance Redressal ?
To CIS. If not satisfied then they may write to SEBI. Investors can also approach district consumer redressal forums in case entities fail to honour their commitments or for any deficiency in service. If the cheques are bounced, investors can move the courts under section 138 of the Negotiable Instruments Act as the right to file criminal complaint exclusively vests with the beneficiary of the cheque.

Investors should further note that wherever they do not have a right to the land or to the produce arising out of the land such investment may be a deposit and where a company fails to repay the deposits, it attracts the provisions of section 58A of the Indian Companies Act, 1956. SEBI has no jurisdiction over such deposits.

What are the mechanisms available to an investor to know about the registration status of various entities either existing or new?
On grant of registration as a collective investment management company, SEBI shall issue a Press Release giving the name and address of the entities which have been granted registration. Further, the same shall be posted on the SEBI website: www.sebi.gov.in.

What are the penal provisions if a registered collective investment management company violates certain provisions of the Regulations?
Action in terms of suspension/ cancellation of certificate may be initiated against the entity.

Moreover, SEBI may, in the interests of the securities market and the investors, initiate criminal prosecution under Section 24 of the SEBI Act, apart from passing of directions such as

• Requiring the person concerned not to collect any money from investor or to launch any scheme;
• Prohibiting the person concerned from disposing of any of the properties of the scheme acquired in violation of the Regulations;
• Requiring the person concerned to dispose off the assets of the scheme in a manner as may be specified in the directions;
• Requiring the person concerned to refund any money or the assets to the concerned investors along with the requisite interest or otherwise, collected under the scheme;
• Prohibiting the person concerned from operating in the capital market or from accessing the capital market for a specified period