CAPITAL MARKET

COLLECTIVE INVESTMENT SCHEMES

Presented to the Faculty of College of Business Management and Accountancy

Holy Trinity College of General Santos City
General Santos City

In Partial Fulfillment of the Requirements for the Degree of

Bachelor of Science in Business and Administration major in Financial
Management

By:

PUEBLOS, SHELLA MAE

QUILOG, ALLEYSA NICOLE

SALIGAN, GERALDINE

SUAREZ, JOVIE MAE

TAN, RECHELL

TANDUYAN, RONA FAITH

MAY 2022
Collective Investment Schemes

Collective investment scheme means a scheme, in whatever form,

including an open-ended investment company, in pursuance of which members

of the public are invited or permitted to invest money or other assets in a

portfolio, and in terms of which collective investment scheme means any pooled

investment vehicle irrespective of legal form. Collective investment scheme

means a scheme for the management of property of any description which

enables participants in the scheme to receive income or profits from that

property, such as open-ended investment companies, unit trusts and investment

trust companies. Collective investment scheme means any pooled investment

vehicle irrespective of legal form; and “public collective investment scheme”

means any collective investment scheme or fund, in which the purchase, sale or

redemption of shares or other interests is not implicitly or explicitly restricted to a

limited group of investors.

Section 11AA (2) of the Securities and Exchange Board of India (SEBI) Act,

1992 states that any scheme of arrangement made or offered by any company

under which the contributions or payments made by investors are pooled

together with the objective of receiving income, profits, produce or property and

is managed on behalf of the investors is called a Collective Investment Scheme.

CIS is an arrangement or scheme which should satisfy the following conditions:

● Individuals pool their money together to invest in a particular asset or

assets.

● The objective – Earn returns on the money so invested.

 ● Returns so earned are divided between the investors based on the

agreement signed by them at the time of making the investment.

● Control of the operations of the scheme and its management is not in the

hands of the investors.

Collective Investment Schemes are more frequently known as ‘investment

funds’, ‘mutual funds’ or simply ‘funds’. They invest in assets, such as bonds,

equities or cash. The collective assets owned by the fund are called a portfolio,

and they are managed by a professional fund manager.

Your funds are combined with those of other investors and spread over the

fund's whole portfolio of assets. Units indicate your proportionate ownership of

the fund's overall assets, as well as the income and capital growth those assets

may provide. Because the underlying value of the assets will rise and fall, the

prices of these units will fluctuate, and because the overall value of the fund is

divided by the number of units issued, your individual share will fluctuate as well.

Various funds take various levels of risk. Some are low-risk, for example,

those who invest mostly in cash. Others take a larger risk, investing in emerging

companies or markets in the hopes of achieving higher or quicker growth.

Regulatory Framework

To strengthen the regulatory framework for collective investment

schemes, Securities and Exchange Board of India (SEBI) has enhanced the net

worth criteria and track record requirements for entities managing such

schemes. Also, the markets regulator has mandated a minimum of 20 investors

and a subscription amount of at least 20 cores for each Collective Investment

Scheme (CIS), according to a notification on May 10. Currently, CIS rules do not

mandate minimum number of investors, maximum holding of a single investor or

minimum subscription amount. In addition, the regulator has put a cap on cross-

shareholding in Collective Investment Management Company (CIMC) to 10% to

avoid conflict of interest. To give this effect, the SEBI has amended CIS

regulations. The rules, first notified in 1999, have not been reviewed since then.

The move comes after the board of SEBI approved a proposal in this regard in

its board meeting in March. The new rule is aimed at strengthening the

regulatory framework for collective investment schemes as well as empowers

the CIMCs to effectively discharge their responsibilities towards the investors.

CIS is a pooled investment vehicle in closed-ended investment space and the

units of the schemes are listed on an exchange.

The structure of CIS is a two-tier one as there are two entities involved in

the process - the CIMC and trustees. CIMC is created to float and manage a CIS

and the trustee is appointed as guardian of the funds and assets. With regard to

eligibility criteria, SEBI said applicant or its promoters should have a sound track

record and general reputation of fairness and integrity in all their business

transactions. The applicant should have been carrying out business in the

relevant field in which CIS schemes are proposed to be launched, for a period of

at least five years; net worth should be positive in all the immediately preceding

five years and should have profits in three out of the five years. CIMCs are

required to have a minimum net worth of 50 cores as compared to the present

requirement of 5 cores. “The applicant has a net worth of not less than 50 core

on a continuous basis: Provided that the applicant shall have a net worth not less

than 100 core till it has profits for five consecutive years”, in case the
requirements related to profit is not fulfilled,” SEBI said. At present, there is no

such requirement for relevant business, net worth or profitability. With no limit on

minimum investment by an investor, retail investors are the primary target base

for CIS. Under the new framework, each CIS will have a minimum subscription

amount of ₹20 core and each CIS needs to have a minimum of 20 investors and

no single investor will hold more than 25% of the assets under management of

such schemes. To avoid the conflict of interest, the regulator has restricted a

CIMC and its group/ associates/shareholders’ shareholding in a scheme at 10%

or representation on the board of rival CIMC. Besides, the mandatory investment

of CIMC and its designated employees in the CIS has to align their interests with

that of the CIS. Also, SEBI said CIS will not be open for subscription for more

than 15 days. However, the scheme may be kept open for subscription for a

maximum of another 15 days subject to issuance of a public notice by the CIMC

before the expiry of initial 15 days. At present, the limit is for 90 days. Further,

the regulator has rationalized fees and expenses to be charged for the scheme.

Also, unit certificates against acceptance of application will be allotted as soon

as possible but not later than five working days from the date of closure of the

initial subscription list.

Restriction on Business Activities

When the government conducts business with private-sector entities,

there is a potential of corruption, especially if any individuals with a private stake

in the business activity are engaged. Restrictions and prohibitions on commercial

operations are one of the legislative tools available to protect public funds from

being spent in ways motivated by corporate interests. This policy is primarily

meant to combat corruption, but it also has implications for the proper avoidance

of conflicts of interest. The legal institution of business activity restriction and

prohibition is only applicable to public-sector bodies and organizations in which

an official holds an office, as well as the entity in which the said official or their

family member is involved, according to the Integrity and Prevention of

Corruption Act (IPCA). In other words, limits on corporate activity may apply

primarily to public-sector groups and organizations where officials have

positions.

The IPCA differentiates between two categories of business activities:

Absolute prohibition of business activities- Paragraph 1 of Article 35 of the

IPCA stipulates that a contracting authority (any public-sector body or

organisation) required by law to conduct a public procurement procedure may

not conduct business (order goods, services, or construction works) with any

entity in which the official who holds an office in the contracting authority, or a

member of their family serves as a manager, member of management, or legal

representative, or holds a 5% or greater share in the founders’ rights,

management, or capital either directly or through other entities. This prohibition

is also applicable to procedures granting concessions or other forms of public-

private partnership, as well as to procedures granting special or exclusive rights.

Pursuant to Paragraph 2 of Article 35 of the IPCA, the prohibition also applies to

conducting business between the contracting authority and the official or a

member of their family as a natural person, while Paragraph 4 of Article 35

extends the prohibition also to smaller parts of a municipality, i.e. village-, local-

and quarter communities with own legal personality inasmuch the municipal

official holds a membership in the relevant smaller part of the municipality or if

the business activity in question may only be entered into with their consent.

Conditionally permitted business activities- Pursuant to Paragraph 3 of

Article 35 of the IPCA, the prohibition of business activities does not apply to

procedures and other manners of obtaining means which do not constitute the

ordering of goods, services, or construction works, or any form of public-private

partnership provided that all provisions of the IPCA or other applicable law on

the obligation of avoidance of the conflict of interest are duly observed, or

provided that the official is excluded from all stages of decision-making on the

entering in a business activity or the handling of a procedure (otherwise, the

consequences applicable in cases of the prohibition of business activities will

ensue).

The Collective Investment Management Company should not:

(i) undertake any activity other than that of managing the scheme;

(ii) act as a trustee of any scheme;

(iii) launch any scheme for the purpose of investing in securities;

(iv) invest in any schemes floated by it.

However, it has been provided that a CIMC may invest in its own scheme, if it

makes a disclosure of its intention to invest in the offer document of the scheme,

and does not charge any fees on its investment in that scheme.

Submission of Information and documents

Section 141 of the Corporation Code of the Philippines requires a

corporation, lawfully doing business in the Philippines, to submit to SEC an

annual report of its operations, together with a financial statement of its assets

and liabilities covering the preceding fiscal year. The report shall be submitted

within the prescribed period to SEC. In view of the deadlines imposed on the

filing of these reports, there is a surge in the submission of annual corporate

reports every year

The SEC is now introducing an innovative, integrated solution to address the

increasing volume of Annual Reports submission consisting of Audited Financial

Statements stamped received by the BIR and General nformation Sheet that will

be able to integrate seamlessly with the SEC process resulting in a more

efficient, reliable and convenient process for compliance of Annual Reportorial

Requirements of corporations without the need to proceed to the SEC personally

to submit the said documents.

In line with this, on March 18, 2016 the SEC will be soft launching a new system

for the submission of these documents to the SEC called the SEC Express

Nationwide Submission or SENS. This allows filers an additional submission

option to the SEC’s standard procedures. With this option filers can simply send
their documents to the SEC through a designated courier or courier of their

choice instead of submitting these personally at SEC office and/or Satellite

Offices.

Below is the step-by-step process when using SENS when submitting

documents to the SEC:

• Log on to www.secexpress.ph/sens

• Accomplish, print and sign the SENS form, checklist and undertaking. Enclose

these documents with the reports to be filed with the SEC in one envelope.

• General Information Sheet (GIS)

• Filers who do not require a return copy of the document submissions may

proceed to the nearest courier office of their choice and pay the courier fee.

• Filers who require a return copy of their document submissions may proceed to

the designated SENS courier and pay the service/courier fees. A list of

designated SENS Couriers is available at www.secexpress.ph/sens for your

reference.

• For inquiries please contact 737-8888.

The SEC Express System hotline is available to answer any questions regarding

SENS. To call the hotline for free, simply dial 737-8888 using any landline in

Metro Manila; calls from mobile phones and landlines outside Metro Manila will

be charged according to mobile and landline carrier rates. The hotline is

available from 8am to 5pm, Mondays to Saturdays.

REFERENCES:

Collective Investment Scheme. Retrieve from

https://www.blackrock.com/lu/intermediaries/education/understanding-

investments/collective-investment-schemes

Restrictions on Business Activities. Retrieve from

https://www.taxdose.com/restrictions-on-business-activities-2/

SEBI notifies rules to strengthen regulatory framework for Collective Investment

Scheme. Retrieve from

https://www-thehindu-com.cdn.ampproject.org/v/s/www.thehindu.com/business/

sebi-notifies-rules-to-strengthen-regulatory-framework-for-collective-investment-

scheme/article65404171.ece/amp/?

amp_gsa=1&amp_js_v=a9&usqp=mq331AQKKAFQArABIIACAw%3D

%3D#amp_tf=From%20%251%24s&aoh=16535545079276&referrer=https%3A

%2F%2Fwww.google.com&ampshare=https%3A%2F%2Fwww.thehindu.com

%2Fbusiness%2Fsebi-notifies-rules-to-strengthen-regulatory-framework-for-

collective-investment-scheme%2Farticle65404171.ece

SEC Express Nationwide Submissio. Retrieve from

https://www.sec.gov.ph/online-services/sec-express-nationwide-submission/

What is Collective Investment Scheme.Retrieve from

https://www.ifec.org.hk/web/en/investment/investment-products/funds/collective-

investment-scheme/what-is-a-collective-investment-scheme.page