Collective Investment Scheme: Conditions and Exemptions


Meaning of Collective Investment Scheme

Collective Investment Scheme refers to an investment scheme under which various investors come together for pooling their money in order to make an investment in a particular asset and sharing returns from such investment as per the agreement entered into by them prior to pooling funds. In simple terms, it is an investment of collective nature where people come together to benefit from incomes or returns of investment made by pooling funds. These funds are managed by professional investment managers on behalf of peoples who pool funds for doing an investment. Investors do not have any day-to-day control over operations and management of such scheme. Collective investment management company is one that organize, operate and manages these type of collective investment arrangements. It is incorporated as per company’s act, 1956 and registered under SEBI Regulations, 1999. All collective investment schemes need to fulfill provisions of sub section (2) of section 11AA of SEBI act.

Conditions of Collective Investment Scheme

Following conditions need to be fulfilled by investment scheme to be termed as collective investment scheme.

  1. The payments, investments or contributions made by investors, by whatever name called, are pooled and utilized exclusively for scheme purpose. 
  2. The payments, investments or contributions are made by investors to such investment arrangement with the aim of getting income, profits, produce or property regardless of either it is moveable or immovable. 
  3. There is no command of investors over the activities and administration of investment scheme.
  4. The property, contribution and investment that is a part of investment scheme, regardless of identifiable or not, is managed by professionals on behalf of investors.

Exemptions to Collective Investment Scheme

The following activities are excluded from collective investment scheme as per the SEBI act.

  1. Any scheme that is offered by a co-operative society.
  2. Any scheme that is an insurance contract.
  3. A scheme in which Non-banking financial companies accept the deposits.
  4. Any arrangement under which deposits are accepted as per the section 58A of companies act 1956.
  5. A scheme in which contributions are made as a subscription to mutual funds.
  6. Any arrangement in which deposits are declared as Nidhi/ Mutual benefit society when being accepted by company.
  7. An arrangement providing for other schemes like insurance scheme or Pension scheme under Employees Provident Fund.