SEBI Announces Rules to Strengthen the Regulatory Framework for Collective Investment Schemes


The Markets Authority has mandated a minimum of 20 investors and a minimum subscription amount of ₹20 crore for each collective investment scheme

The Markets Authority has mandated a minimum of 20 investors and a minimum subscription amount of ₹20 crore for each collective investment scheme

In order to strengthen the regulatory framework for collective investment schemes, the Securities and Exchange Board of India (SEBI) has improved the net worth criteria and track record requirements for companies managing such schemes.

In addition, according to a communication dated 10.10.

Currently, CIS regulations do not impose a minimum number of investors, a maximum holding by any single investor, or a minimum subscription amount.

In addition, the regulator has capped cross ownership in the Collective Investment Management Company (CIMC) to 10% to avoid conflicts of interest.

To achieve this effect, the SEBI modified the CIS regulations. The regulations, first notified in 1999, have not been reviewed since. The move comes after SEBI’s board approved a proposal to that effect at its March board meeting.

The new rule aims to strengthen the regulatory framework for collective investment schemes and enable CIMCs to effectively discharge their responsibilities to investors.

CIS is a pooled investment vehicle in the closed-end investment space and the shares of the Schemes are listed on an exchange.

The structure of CIS is two-tiered as there are two entities involved in the process – the CIMC and the Trustees. CIMC is formed to set up and administer a CIS and the Trustee is appointed custodian of the funds and assets.

Regarding the eligibility criteria, SEBI said that the applicant or its sponsors should have a solid track record and an overall reputation for fairness and integrity in all of their business transactions.

The applicant should have worked for at least five years in the relevant area where CIS systems are to be introduced; Net worth should be positive for all of the immediately preceding five years and show gains for three of the five years.

CIMCs must have a minimum net worth of £50m, compared to the current requirement of £5m.

“The applicant has continuously a net worth of not less than £50m: provided the applicant must have a net worth of at least £100m until it makes profits for five consecutive years” if the requirements relate to profit will not met,” said SEBI.

Currently there is no such requirement for relevant business, net worth or profitability. With no limit to an investor’s minimum investment, retail investors are the primary target audience for CIS.

Under the new framework, each CIS will have a minimum subscription amount of ₹20 crore and each CIS must have at least 20 investors and no single investor will own more than 25% of the assets under management of such schemes.

In order to avoid the conflict of interest, the regulator has limited the participation of a CIMC and its group/partners/shareholders in a plan to 10% or representation on the board of the competing CIMC.

Also, the mandatory investment of CIMC and its designated employees in the CIS must align their interests with those of the CIS.

Also, SEBI said CIS will not be open for subscriptions for more than 15 days. However, the program may be kept open for subscription for a maximum of an additional 15 days, subject to public announcement by CIMC before the end of the first 15 days. Currently the limit is 90 days.

In addition, the regulator has streamlined the fees and expenses to be charged for the system. Share certificates against acceptance of the application will also be allotted as soon as possible and no later than five working days after the date of completion of the initial subscription list.

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