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SEBI has issued a new set of guidelines for collective investment schemes.
Just like mutual funds, a collective investment scheme (CIS) also pools money from people to invest in a particular asset class. In CIS, the company enters into an agreement with investors to share profits from investments.
In the past, there were CIS which invested in tree plantation and road projects to offer returns. But most of these schemes were fly-by-night operated by companies as they were unregulated.
With the new regulations by SEBI, CIS may emerge as new investment option for many investors. Let us look at broad guidelines of the CIS:
- CIS will have minimum maturity period of 5 years
- CIS will have to collect at least Rs.20 crore to launch a scheme
- CIS will have to acquire at least 20 investors and no single can have over 25% holding in the scheme
- Subscription cannot be open for more than 15 days. CIS can extend subscription period by another 15 days subject to regulatory approvals
- In case, CIS has to refund the subscription amount, it has to be done within 5 working days from date of closure of subscription
- Units have to be issued within 5 working days
- CIS can invest up to 25% of the total corpus in their inhouse projects
- CIS can charge up to 2% as initial issue expenses
- CIS can also charge annual recurring expenses of up to 2%
- CIS cannot charge performance-based fee for fund management
- CIS will have to follow trail model to compensate their distributors. Also, CIS have to pay such commission from scheme expenses and not from their book
- Promoter of the CIS should have at least 5 years of experience in product or field in which CIS proposed to invest
- Promoter should have a positive networth of at least 5 preceding years
- Promoter should have net worth of at least Rs.50 crore
- Promoter can have up to 10% representation in another CIS
