Team Members

Sagar Gangashetty 51 Disha Jethani 72

Sayli Gaikwad 60 Sheeba Khan 81

Pooja Jain 65 Amogh Kokate 86

Aditi Jajodia 69 Devika Kudupudi 91

Need and Objective

• To understand the functioning of a CIS

• To understand the role of various participants of a CIS

• To differentiate between various investment schemes

Introduction

• Understanding a Collective Investment Scheme

• Intervention of SEBI in 1999

 Key Term: Collective Investment Scheme
According to Section 11AA of the SEBI Act, CIS is any scheme or arrangement, which
satisfies the following conditions:

• The contributions, or payments made by the investors are

are pooled and utilized solely for the purposes of the scheme or arrangement
are made with a view to receive profits, income, produce or property
Managed on behalf of the investors

• The investors do not have day to day control over the management and operation of the
scheme or arrangement
• Amended Definition
• Schemes not recognised as CIS
Other Key Terms
• CIMC • Ponzi Scheme

• Trustee • Chit Fund

• Closed ended CIS • Rating Agency

• Existing CIS • Appraising Agency

• Mutual Fund • Offer Document

Need for CIS Guidelines

• Series of Ponzi Schemes in the 1990s

• Anubhav Teak Plantations Scam

• Regulatory Actions taken

CIS Participants
Trustee
• Holds the property of the CIS in trust for the benefit of the unit holders

Collective Investment Management Company

• Organises, operates and manages a CIS

Fund Manager
• Manages the investment decisions of the scheme and also provides the trading,
reconciliations, valuation & unit pricing of the scheme.
Unit Holders
• Contribute the money in the scheme and are the owner (or have rights to) the
assets and associated income
Benefits & Limitations

Benefits Limitations
No guaranteed
Affordability returns

Loss of owner’s
Diversification rights

Liquidity Loss of Control

Inefficiency of
Accessibility cash reserves
Eligibility Criteria for CIS Registration

• Should be registered as a company under Companies Act 2013

• Mentioned CIS as one its main objective in the MoA

• Net worth of not less than 5 crore

• Applicant must have adequate infrastructure to operate a CIS

Eligibility Criteria for CIS Registration

• 50% of the directors should not be associated with the person having

control over CIMC

• Not refused by the Board in the past

• Applicant must be a fit and proper person

• Directors must be honest, experienced & not committed any moral or

economic offence
Procedure for launching a CIS
Credit rating and appraisal requirement

Insurance for protection of CIS

No scheme should provide guaranteed returns

Non refundable fee for registration

Offer period should not be more than 90 days

Procedure for launching a CIS
• Disclosures in offer document

• Advertisement material

• Allotment of units and refund of money

• Unit certificates

• Transfer of units

• Money to be kept in separate account & transfer of money

 Understanding a Ponzi Scheme

Convince the Initial investors Try to convince Collapse of a

Investors paid off others Ponzi Scheme
Red flags of a Ponzi Scheme

• High return and low risk • No registrations or licenses

• Mystery Source • Paperwork problems

• Continuous offerings • Trouble with payouts

Offences and Penalties

• Imprisonment: 2-7 years

Accepting Unregulated Deposits
• Fine: 3-10 lakhs

• Imprisonment: 3-10 years

Defaulting in repayment • Fine: 5 lakh-twice the amount collected

• Imprisonment: 5-10 years

Repeated
• Fine: 10 lakh to five crore
offenders
Chit Funds

• Savings scheme

• Agreement between subscribers

• Subscribers invest money by way of periodic installments

• Prize amount = pool of contribution – discount – organizer charges

Understanding a Chit Fund Scheme
 Salient Features of Chit Fund Act 1982
• Name should contain the words – Chit Fund, Chitty, Kuri, Fraternity Fund

• Registered chit funds are not permitted to conduct any other business

• The maximum amount that a member can forego should not be more than 40%

• Foreman is entitled for a maximum of 7% commission of the chit amount

• In case of the same bid amount, the winner of the prize money is decided by lottery

• The minimum amount of capital required by a company to conduct a chit fund business
is Rs 1 lakh
Mutual Funds

• Introduction

• Mutual Fund operation

• Difference between a CIS and Mutual Fund

Key Terms

• Net Asset Value – NAV • New Fund Offer – NFO

• Systematic Investment Planning – SIP • Assets under Management (AUM)

• Systematic Transfer Planning – STP • Entry Load and Exit Load

• Systematic Withdrawal Plan – SWP • Expense Ratio

Structure of Mutual Funds
Unit Holders

Sponsor

Trustee AMC

Mutual Fund Transfer Agent

Custodian

SEBI
Registration

• Sponsor (minimum 40% of contribution to AMC) applies to SEBI

• Initial non-refundable fee- Rs.5 lakh.
• The sponsor should have sound track record
Sound track record:
1. Minimum 5 years in Financial services business
2. Positive net worth in preceding 5 years
3. Net worth > capital contribution
4. Has profits in 3/5 years
5. Fit and proper person
Registration

• After Sponsor criteria is fulfilled

• Trust deed and Investment management agreement.

• Set up trustee and AMC

• Appointing a custodian.

• Pay fee of Rs.25 lakh.

Classification of Mutual Funds

Based on Based on Equity Hybrid Debt

Structure Objective Funds Funds Funds

Index Fund Long term

Open Equity Arbitrage Fund
Income Fund
Ended Fund Large Cap Gilt Fund
Equity Saving
Fund
Mid & Small Cap Short term
Income fund
Hybrid Balanced Fund
Interval Flexicap Fund
Fund Ultra short term
income fund
Monthly Income
ELSS Fund Plan
Liquid Fund
Close
Debt Fund Sector &
ended Thematic Fund Asset Allocation Fixed Maturity
Plan
Risk Measures
Risk
Explanation Formula Significance
measures
A=[(fund return-risk free Positive alpha means the
It measures the difference between a
return)-{(funds fund has outperformed
Alpha fund’s actual returns and it’s expected
beta)*(benchmark return- it’s benchmark index and
performance, given it’s level of risk
risk free return)}] vice-versa.

B=(standard deviation of Beta=1;

Measures a fund’s volatility compared to
Beta fund/standard deviation of Beta>1;
that of a benchmark
benchmark)*r-square Beta<1.

Higher SD means higher

The return on a fund’s deviation from the
Standard volatility. Thus, funds
expected returns based on it’s historical SD=Square root of variance
Deviation with lower SD is
performance
preferable
General Range:
A measure of the correlation of the
R-Squared=square of 1-40%
R-Squared portfolio’s returns to the benchmark’s
correlation 40-70%
returns
70-100%
Case Study – Saradha Group Financial Scandal
Saradha Group
• Key people
• Sudipto Sen
• Debjani Mukherjee
• Invested heavily in Brand Building
• Bengali Film Industry
• Local Television Channels
• Newspapers
• Saradha Group bought Global Automobiles in 2011
• CSR
• Donation to Kolkata Police
• Mohan Bagan FC
Operations and Scam
• Secured Debentures & Redeemable Preferential Bonds

• SEBI confronted in 2009

• Creation of 200 new companies

• Operations in variations of CIS and Chit Fund

• 2011 - SEBI warned the State Govt. of W.B

• Acquisition and Sales of shares of listed companies

• 2012 – SEBI asks the group to stop operating

Collapse

• RBI governor asks to initiate suo motu.

• Group’s cash inflow less than its payouts.

• 6th April 2013 – Sudipto Sen confesses and fled.

• Mamta Banerjee announces Rs.500cr relief fund

Case Study – Sahara India Parivar Investor Fraud
 The Scam

• 2009 : Issuance of Optionally Fully Convertible Debentures SIRECL , SHICL

• 24000 Crore rupees raised from over 3 Crore investors

• Issuing continued for 2 years

• Sahara contested the case in various courts

• Supreme Court’s judgement

The Scam
• Sahara sent truck filled with documents

• A case of Money laundering

• Out of 3 Crore investors only 46000 claimed their

money.

• Supreme Court freezed the bank accounts and

sealed their properties.

• 26th Feb, 2014 Subrata Roy was arrested

Case Study – KBC Scam Nashik
The Scam
• Key people : Bhausaheb Chavan, Aarti Chavan

• Established KBC multi trade Pvt. Ltd (2010)

• Scheme: Promise to double money before 3 years (30 month period)

• For example:
86000/- Now
86000/- 06 months
86000/- 18 months
86000/- 30 months

• Investment in denominations of Rs. 7,200/- or Rs. 17,200/- or Rs. 57,200/- or Rs.

86,000/-
Collapse

• Diversification of Business – Hotels, Real Estate, Financial Services

• Failure of repayments

• Case registered by EOW of Rs.212.18crores

• Assets seized – Rs.73crores

• Surrendered in 2016.
GIFT: Gujarat International Finance Tec-City

 GIFT Collective Investment Management Co. Ltd, India’s first and only registered
collective investment scheme (CIS)

 It will fund the development of the second phase of the Gujarat International
Finance Tec-city Co. Ltd, or GIFT City
 Conclusion:
CIS still pose problems