Sebi issues guidelines to bolster the Collective Investment Scheme (CIS) regulatory system on 11 May 2022.

New Delhi, India – Sebi, the markets regulator, has strengthened the net worth standards and track record requirements for organisations operating collective investment plans in order to reinforce the regulatory environment for such schemes.

According to a statement issued on Tuesday, the regulator has required a minimum of 20 investors and a subscription value of at least Rs 20 crore for each Collective Investment Scheme (CIS).

CIS laws currently do not require a minimum number of investors, a maximum ownership of a single investor, or a minimum subscription value.

Furthermore, to minimise conflicts of interest, the regulator has limited cross-shareholding in Collective Investment Management Company (CIMC) to 10%.

The Securities and Exchange Board of India (Sebi) has updated CIS rules to this effect. The regulations, which were initially announced in 1999, have not been revised since.
The move comes after the Sebi board of directors approved a proposal in this regard at its March meeting.

The new regulation is intended to reinforce the regulatory environment for collective investment schemes while also empowering CIMCs to successfully fulfil their obligations to investors.

CIS is a pooled investment vehicle in the closed-ended investment area, and the schemes’ units are traded on an exchange.

The CIS structure is two-tiered since there are two organisations participating in the process: the CIMC and trustees. A CIMC is formed to float and administer a CIS, and the trustee is designated as the trustee of the funds and assets.

In terms of qualifying requirements, Sebi said that the applicant or its promoters must have a solid track record and a general reputation for fairness and honesty in all commercial activities.

The applicant must have been doing business in the relevant sector in which CIS schemes are planned to be launched for at least five years; net worth must be positive in all of the five years before the application, with profits in three of the five years.

CIMCs must have a minimum net worth of Rs 50 crore, up from the current threshold of Rs 5 crore.

“The applicant has a net worth of at least Rs 50 crore, which is more than the current criterion of Rs 5 crore.”

“The applicant has a net worth of not less than Rs 50 crore on a continuous basis: Provided, however, that the applicant shall have a net worth of not less than Rs 100 crore till it has profits for five consecutive years” if the profit standards are not met, according to Sebi.

There is no such criteria for relevant business, net worth, or profitability at the moment. Retail investors are the main target base for CIS since there is no minimum investment requirement.

Under the new framework, each CIS must have a minimum subscription amount of Rs 20 crore and a minimum of 20 investors, with no single investor holding more than 25% of the assets under management of such schemes. To prevent a conflict of interest, the regulator has limited a CIMC and its group/associates/shareholders’ investment in a plan to 10% or participation on the board of a competing CIMC to 10%.Furthermore, Sebi said that CIS would not be available for subscription for longer than 15 days.

However, the scheme may be maintained available for subscription for a further 15 days if the CIMC issues a public notice before the original 15 days expire.

The maximum is currently set at 90 days. Furthermore, the regulator has rationalised the scheme’s costs and expenditures. Furthermore, unit certificates will be sent as quickly as feasible, but no later than five working days after the first subscription list is closed.

Note :- On May 11, 2022, this piece will be published in Economic Times for the first time.