Collective Investment Scheme

Collective Investment Scheme – UPSC Notes

Table of Contents

Investment, Returns, Profit, loss , these terms may be more and more sophisticated to economists and business administrators. But these terms need to be understood by each and every one of us. The Indian economy is growing day by day and minute changes and policies affect its growth positively and negatively. The investment of people rather than their savings makes the economy grow faster. An economy which tends to invest more will result in more growth. In this scenario we need to understand the concept called collective investment scheme (CIS). The examinations like UPSC Civil Services examination will surely pool their questions relating to this area in order to check the aspirants economic outlook and understanding. Through this blog let us check out what a collective investment scheme is.

Collective investment scheme is the pooling of investment of different people, organizations or investors altogether into one scheme or one investment. The single investment may not be that much impactful on the economy. There will be a limit to the amount that can be invested by a single person. And the risk of that investment will be so high that, if the investment goes on loss the single-handed person who invested should suffer all the loss incurred by the investment. The proportion of the gravity of the risk and profit associated with the single investment is so high. In order to reduce the same, and share the risk and maximize the investing amount, the collective investment scheme has been begun by the business persons and economists. For example, a group of 1000 people investing on a particular scheme by an amount will constitute a collective investment scheme.

SEBI – CIS Regulating Body

The Securities and Exchange Board of India constituted by the Securities and Exchange Board of India Act is the governing and regulating body of the collective investment scheme. Why a regulating body has been constituted is that, after the beginning of the practice of collective investment schemes, a lot more fraud has begun to take place. This type of fraud deprives the investors of their rights and security and also it affects the economy very badly. The schemes like Multi Level Marketing (MLM) and Money Chain are examples for this. In order to regulate such acts, the SEBI body is entrusted with the duty of regulating the same.

Definition of Collective investment scheme as per the SEBI act is as follows: A Collective investment scheme is any scheme or arrangement, which satisfies the conditions, referred to in sub-section (2) of section 11AA of the SEBI Act. Any scheme or arrangement made or offered by any company under which the contributions, or payments made by the investors, are pooled and utilized 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 schemes or arrangements.

As per the SEBI Act, the following schemes do not constitute a Collective Investment Scheme:

Any scheme or 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 or arrangement under which deposits are accepted by non-banking financial companies
Any scheme or arrangement being a contract of insurance to which the Insurance Act, applies;
Any scheme or arrangement providing for any Scheme, Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund and Miscellaneous Provisions Act, 1952
Any scheme or arrangement under which deposits are accepted under section 58A of the Companies Act, 1956 (1 of 1956);
Any scheme or 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 or 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 or arrangement under which contributions made are in the nature of subscription to a mutual fund;

Redressal Mechanism for Grievance Relating to CIS

The grievance of the investors is primarily should be addressed by the CIS itself. If they haven’t received a desired redressal, they can approach the District Consumer Redressal Forum as per the SEBI Act. For bouncing of cheques, investors can move the courts under section 138 of the Negotiable Instruments Act as the right to file criminal complaints exclusively vests with the beneficiary of the cheque. Investors should further note that wherever they do not have a right to the land or to the produce arising out of the land such investment may be a deposit and where a company fails to repay the deposits, it attracts the provisions of section 58A of the Indian Companies Act, 1956. It is clarified that SEBI has no jurisdiction over such deposits.

Conclusion

The Collective investment scheme is a leaping step towards the growing economy. The government has created an adequate legal framework for mitigating the fraud in the collective investment scheme and safeguarding the funds of the investors. The elements and procedures associated with the collective investment scheme should be understood if you are a prospective investor towards any such scheme or if you are a UPSC aspirant you need to definitely acquire the elements of the scheme as above because it is a question pool of the UPSC examinations.