Securities and Exchange Board of India (SEBI) in the year 2014 made it compulsory for all investments into Collective Investment Scheme (CIS) funds to be made through banking channels and not in cash. SEBI has raised the step to prevent money laundering activities through such scheme.
Collective Investment Management Company
A Collective Investment Management Company is a company incorporated under the provisions of the Companies Act, 1956 and registered with SEBI under the SEBI (Collective Investment Schemes) Regulations, 1999, whose object is to organise, operate and manage a CIS.
Collective Investment Schemes
A Collective investment scheme is any scheme/arrangement, which satisfies the conditions, referred to in sub-section (2) of section 11AA of the SEBI Act.
In collective investing scheme, a group of individuals come together to pool their money for investing in a particular asset(s) and for sharing the returns arising from that investment as per the agreement reached among them prior to pooling money .
As per the SEBI act, following conditions must be satisfied for a valid CIS,
i. the contributions by the investors, are pooled and utilised solely for the purposes of the scheme
ii. the contributions are made to such scheme by the investors with a view to receive profits, income, produce or property, whether movable or immovable, from such scheme
iii. the property, contribution or investment forming part of scheme/arrangement, whether identifiable or not, is managed on behalf of the investors;
iv. The investors do not have day to day control over the management and operation of the scheme.
CIS is generally managed by a professional fund manager associated with following benefits:-
a. Affordability: - Any person having small initial investment can take part in Collective investment scheme.
b. Accessibility: - Investors can collectively access a broader range of products which they may not afford on their individual capacities.
c. Scope for good return: - CIS gives a great opportunity to generate higher returns if one invests in CIS for long period of time.
d. Diversification: - CIS help to curtail risks by distributing investments across of wide range of assets.
e. Safety & transparency: - Fund managers are there to provide a regular updates along with a clear picture of your profile. So that, your investments can managed in disciplined and regulated manner.
f. Liquidity: - It offers easy buying and selling of units without any restrictions like dependency on market demand and supply factors.