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SEBI barred cash Transactions in Collective Investment Schemes to check laundering

Jan 10, 2014 11:20 IST

Securities and Exchange Board of India (SEBI) on 9 January 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. The norms came into effect from 9 January 2014.

The newly released norms will help in improving transparency in fund-garnering activities through CIS activities. It will also make it easier to identify the source of funds and real investors involved in the schemes.

SEBI has amended the regulations of Collective Investment Schemes Regulations 1999 that is mentions under Section 30 section 11 of the Securities and Exchange Board of India Act, 1992 (15 of 1992). With this amendment the regulations can be called as the Securities and Exchange Board of India (Collective Investment Schemes) (Amendment) Regulations, 2014.

The step was taken by SEBI in light of the past investments cases in which investors have been defrauded through illegal CIS activities in which the operators claim to return the money on being caught by the regulators and law enforcement agencies.

Under this scheme, the person will have to make an application for registration as per the Collective Investment Management companies as any scheme, which is prohibited under any law will not be considered as the CIS. The CIS Company will comply with the Know Your Client guidelines.

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. Any scheme/arrangement made or offered by any company under which the contributions, or payments made by the investors, are pooled and utilised with a view to receive profits, income, produce or property, and is managed on behalf of the investors is a CIS. Investors do not have day to day control over the management and operation of such scheme/arrangement.

The following do not constitute a collective investment scheme
• Any scheme/arrangement made or offered by a co-operative society or a society being a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State
• Any scheme/arrangement under which deposits are accepted by non-banking financial companies
• Any scheme/arrangement being a contract of insurance to which the Insurance Act, applies
• Any scheme/arrangement providing for any Scheme, Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund and Miscellaneous Provisions Act, 1952
• Any scheme/arrangement under which deposits are accepted under section 58A of the Companies Act, 1956 (1 of 1956)
• Any scheme/arrangement under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society under section 620A of the Companies Act, 1956 (1 of 1956)
• Any scheme/arrangement falling within the meaning of Chit business as defined in clause (d) of section 2of the Chit Fund Act, 1982 (40 of 1982)
• Any scheme/arrangement under which contributions made are in the nature of subscription to a mutual fund

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 Collective Investment Scheme.

Collective Investment Scheme
Entities, which were operating a collective investment scheme at the time of commencement of CIS Regulations i.e. (15 October 1999), are deemed to be an existing collective investment scheme.

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