5/7/24, 10:59 AM Collective Investment Scheme (CIS) - Definition, Features

Collective Investment Scheme

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A Collective Investment Scheme (CIS) is an investment scheme offered by any company under which the payments made by the investors are pooled and u
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5/7/24, 10:59 AM Collective Investment Scheme (CIS) - Definition, Features
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What is a Collective Investment Scheme (CIS)? ₹80 Lakhs* Sign In

The Collective Investment Scheme definition is an investment method where groups of individuals pool
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their money together and invest it in different best investment options, like:
₹50 Lakhs* ₹5K/month

Stocks
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Bonds

Real estate
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Other assets
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With CIS, you can access a wider range of investment options and reduce the risk of losing all your
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money on just one investment.

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The primary purpose of a CIS is to provide individuals with access to a diversified portfolio of
investments that may be challenging or costly to achieve individually. ULIP Calculator

This scheme is managed by professional fund managers who make investment decisions on behalf of Show More Calculator

the investors. Each investor owns units or shares in the scheme, proportionate to their investment
amount.

Note:

SEBI regulates Collective Investment Schemes in India

The SEBI (Collective Investment Schemes) Regulations, 1999, and subsequent amendments
define the participants' roles and responsibilities.

Examples of Collective Investment Scheme:

Some examples of a Collective Investment Scheme SEBI are as follows:

Mutual Funds

Exchange-Traded Funds (ETFs)

Hedge Funds

Real Estate Investment Trusts (REITs)

Private Equity Funds

What are the Features of Collective Investment Scheme (CIS)?

The key features of a Collective Investment Scheme SEBI are listed below:

Pooling of Funds: CIS allows pooling together funds from multiple investors who hold
relatively smaller amounts of money. It helps them to invest collectively in a diversified
portfolio of assets, which may not be accessible to them individually

Professional Management: Professional fund managers manage CIS. These professionals

analyse market trends, conduct research, and select suitable investments aligned with the
scheme's objectives

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5/7/24, 10:59 AM Collective Investment Scheme (CIS) - Definition, Features

Diversification: This scheme provides investors with access to a diversified portfolio of

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investment asset classes, sectors, or geographic regions. Portfolio diversification helps mitigate
the impact of poor performance in any one investment on the overall portfolio

Ownership through Units or Shares: Investors in a Collective Investment Scheme own units or
shares that represent their proportionate ownership in the scheme. The value of these units or
shares is directly linked to the performance of the underlying assets. Investors can buy or sell
units/shares, allowing for liquidity and flexibility in managing their investments

Transparent Reporting: CIS typically provides regular reports to investors, disclosing the
scheme's financial information, performance, and holdings. This transparency helps investors
monitor their investments and make informed decisions

Regulatory Oversight: CIS is subject to regulatory oversight in most jurisdictions. Regulatory

authorities impose rules and regulations to protect investors' interests, ensure transparency,
and promote fair practices in the operation and management of collective investment schemes

Investment Objectives and Strategies: Each CIS has its investment objectives and strategies.
Some schemes focus on capital appreciation, aiming for long-term growth. Other plans
emphasise on generating income through dividends or interest payments. The scheme's
investment strategy outlines the types of assets it invests in and the risk profile it maintains

Accessibility and Affordability: CIS offers access to investment opportunities that may
otherwise be challenging for individual investors to access or afford. By pooling funds,
investors can benefit from economies of scale, professional management, and reduced
transaction costs.

What are the Exemptions under Collective Investment Scheme?

A Collective Investment Scheme SEBI does not include the following categories of schemes:

Any scheme/ arrangement made available by a co-operative society or by a society that is

registered or presumed to be registered under any current State law relating to co-operative
societies;

A scheme/ agreement under which non-banking financial companies take deposits;

Any scheme/ arrangement that is an insurance contract to which the Insurance Act applies;

Any Plan, Pension Plan, or Insurance Plan that is outlined in the Employees Provident Fund and
Miscellaneous Provisions Act of 1952;

Any scheme or arrangement that accepts public deposits under Section 58A of the Companies
Act of 1956 (1 of 1956);

Any scheme or arrangement whereby a business certified to be a mutual benefit society or

Nidhi under section 620A of the Companies Act, 1956 (1 of 1956) accepts deposits;

Any scheme or arrangement that satisfies the criteria for chit business under Section 2(d) of
the Chit Fund Act of 1982 (40 of 1982);

A scheme or arrangement in which payments are made in the form of subscriptions to mutual
funds;

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5/7/24, 10:59 AM Collective Investment Scheme (CIS) - Definition, Features

Who are the Participants in a Collective Investment Scheme? Sign In

In India, the participants in a Collective Investment Scheme (CIS) can include various entities and
individuals. Here are the common participants involved in a CIS:

Participants Details

Sponsor The sponsor is the person/ entity responsible for proposing, initiating and
setting up the Collective Investment Scheme
They fulfil the necessary regulatory requirements and appoint the asset
management company (AMC)
A sponsor ensures compliance with regulatory requirements
They are required to meet the eligibility criteria set by the Securities and
Exchange Board of India (SEBI) and must have a sound track record and
financial standing

Asset Management The AMC is responsible for managing and operating the Collective
Company (AMC) Investment Scheme
They make investment decisions, manage the portfolio, and carry out the
day-to-day activities of the scheme
The AMC must be registered with the Securities and Exchange Board of India
(SEBI)

Trustees The trustees act as custodians of the fund's assets, protect the interests of
the investors, and oversee the activities of the AMC
A trustee ensures that the scheme operates in accordance with the
regulations and trust deed
They must be independent of the sponsor and the AMC and are required to
obtain SEBI's approval for their appointment

Custodian (Optional) A custodian may be appointed to safeguard the securities and other assets
held by the scheme
The custodian ensures proper segregation and safekeeping of assets and
performs related functions as per the regulations
The custodian may also perform related functions as specified by SEBI

Investors The investors are the individuals, institutions, corporate entities, and other
eligible participants who contribute funds to the collective investment
scheme
They pool their money together with other investors to invest in a diversified
portfolio of securities or other assets
Investors can include individuals, institutions, corporate entities, retail
investors, high-net-worth individuals, corporate bodies, trusts, and other
eligible participants

Registrar and Transfer The RTA is responsible for maintaining records of investors, transfer of units,
Agent (RTA) and processing subscriptions and redemption requests
They help in managing the administrative functions of the CIS and ensure
efficient handling of investor transaction

Distributors/ Distributors or intermediaries play a role in marketing, selling, and

Intermediaries distributing the CIS units to the investors
They can be banks, financial institutions, brokers, agents, or other authorised
entities authorised by the AMC
Distributors help in promoting the scheme, assisting investors with the
investment process
They provide information and guidance on the scheme's features and
benefits

Eligibility Criteria for a Collective Investment Scheme

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5/7/24, 10:59 AM Collective Investment Scheme (CIS) - Definition, Features

SEBI defines the eligibility criteria for a Collective Investment Scheme in India. Some of the essential
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eligibility criteria to join a CIS is as follows:

1 Sponsor Entity Type:

The sponsor should be a corporate body under any of the following-

Registered under the Companies Act, 2013

Limited Liability Partnership (LLP)

It should have the necessary legal status to establish and manage the CIS.

2 Track Record:

The sponsor should have a minimum track record of 5 years in the financial services business

This ensures that the sponsor has relevant experience and a proven track record in handling
financial matters

3 Financial Standing:

The sponsor should have a minimum net worth of Rs. 5 crores

This requirement ensures that the sponsor has sufficient financial stability to support the
establishment and management of the CIS

4 Fit and Proper Criteria:

The sponsor, trustees, and directors of the AMC should have a good reputation, be of sound
mind, and not have been convicted of any economic offences or regulatory violations

The fit and proper criteria ensure that only individuals with integrity and competence are
involved in managing the CIS

5 Registration with SEBI:

The CIS, along with its Sponsor and AMC, should obtain registration from SEBI

The registration process involves submitting the necessary application forms, documents, and
fees to SEBI

6 Compliance with Regulations:

The CIS, its Sponsor, and AMC must adhere to investment limits, disclosure requirements,
Investment
valuation norms, and reporting obligations
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One time
They must comply with the investor protection measures specified by SEBI
Monthly

7 Appointment of Trustees: Amount I wish to invest

₹ 10,000
The CIS should appoint trustees who are independent of the sponsor and the AMC
Invest for (Years)

10 Till 2034

Stay invested for (Years)

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5/7/24, 10:59 AM Collective Investment Scheme (CIS) - Definition, Features
y ( )
The trustees should obtain prior approval from SEBI for their appointment and should have the 20 Till 2044 Sign In
necessary qualifications and experience to fulfil their responsibilities
Expected rate of return
(in %)
8 / Year
8 Valuation of Assets:

You You get

The assets of the CIS should be valued periodically in accordance with the valuation norms
invest
₹39.1
prescribed by SEBI.
₹12 L L
Over 10 After 20
Years Years
The valuation should be fair, transparent, and based on reliable methods to ensure accurate
calculation of the net asset value (NAV) of the scheme
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In Conclusion
A Collective Investment Scheme (CIS) in India is a regulated investment vehicle that pools funds from
multiple investors to invest in a diversified portfolio of securities or other assets. The CIS operates
under the rules and regulations set by the Securities and Exchange Board of India (SEBI) to ensure
investor protection, transparency, and compliance. It allows individuals and institutions to access
professional investment management, diversification, and potential returns while adhering to
regulatory requirements.

FAQ's

What is an example of a collective investment scheme?

An example of a collective investment scheme is a mutual fund. A mutual fund pools money from
multiple investors to invest in a diversified portfolio of securities such as stocks, bonds, and other
financial instruments. The fund is managed by professional fund managers who make investment
decisions on behalf of the investors. Each investor owns shares in the mutual fund, representing
their proportional ownership of the underlying assets.

What is the collective investment scheme under SEBI?

Under SEBI (Securities and Exchange Board of India), a Collective Investment Scheme refers to any
scheme or arrangement that pools funds from multiple investors to invest in securities or other
assets, as specified by SEBI. CISs include entities such as mutual funds, venture capital funds, Real
Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and Alternative
Investment Funds (AIFs). SEBI regulates and oversees collective investment schemes in India to
ensure investor protection and maintain market integrity.

What are the three types of collective investment schemes?

The three main types of collective investment schemes are as follows:

Mutual Funds: Mutual funds pool money from multiple investors to invest in a diversified
portfolio of securities. Professional fund managers make investment decisions for mutual
funds on behalf of the investors.

Exchange-Traded Funds (ETFs): ETFs are investment funds that trade on stock exchanges,
similar to individual stocks. They represent a basket of securities such as stocks, bonds, or

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5/7/24, 10:59 AM Collective Investment Scheme (CIS) - Definition, Features

commodities and aim to track the performance of a specific index or sector.

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Unit Investment Trusts (UITs): UITs are investment vehicles that pool funds from investors to
purchase a fixed portfolio of securities. The assets are typically not managed actively. The
securities held in UITs have a specified maturity date, after which the trust is dissolved, and the
assets are liquidated and distributed to the investors.

What is a collective investment scheme in competition law?

In competition law, a collective investment scheme refers to an arrangement where multiple

independent entities pool their resources or assets to invest in a particular venture or business
activity.
It involves cooperation between separate entities that join together to jointly invest in a project,
usually to share risks, costs, and potential profits.

Under competition law, collective investment schemes are scrutinised to ensure compliance with
antitrust regulations.

What is a Collective Investment Management Company?

A Collective Investment Management Company (CIMC), also known as an Asset Management

Company or Investment Management Company, is a financial institution or company that is
responsible for managing and operating collective investment schemes on behalf of investors.
The main functions of a CIMC include the following:

Portfolio management of the investors

Administration of the CIS Fund

Compliance and regulatory oversight over the CIS

Providing investor services like account management, investor communications, and

addressing investor queries

Can an existing collective investment scheme raise further funds?

Yes, an existing collective investment scheme (CIS) can raise further funds. However, there are
some restrictions on how this can be done.
Under the SEBI (Collective Investment Schemes) Regulations, 1999, a CIS can raise further funds
by either:

Making a public offer: This involves issuing new units to the public. The CIS must first obtain
a fresh certificate of registration from SEBI before making a public offer.

Making a private placement: This involves issuing new units to a limited number of investors.
The CIS does not need to obtain a fresh certificate of registration from SEBI to make a private
placement.

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5/7/24, 10:59 AM Collective Investment Scheme (CIS) - Definition, Features

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How does a collective investment scheme work?

A collective investment scheme, like a mutual fund or unit trust, pools money from multiple
investors to create a large investment fund. Professional managers then invest this money in a
diversified portfolio of assets such as stocks, bonds, or real estate.
Investors buy units or shares in the scheme and receive a proportionate number of units based on
their investment. They can buy or sell units on a daily basis. The scheme charges fees to cover
management costs. Regular reports and disclosures are provided to investors.

How to register a collective investment schemes?

Here are the key points on how to register a collective investment scheme:

Determine the jurisdiction where you plan to establish and operate the scheme.

Engage legal and financial professionals experienced in securities laws and regulations.

Prepare documentation such as a prospectus or offering memorandum.

Conduct due diligence on the investment manager or management team.

Ensure compliance with applicable regulatory requirements.

Submit the completed registration application and supporting documents.

The regulatory authority will review the application and may request additional information.

If approved, the scheme will be registered and can legally operate.

Ongoing compliance with regulatory obligations is necessary after registration.

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