TO STRENGTHEN the regulatory framework for Collective Investment Schemes (CIS), markets regulator SEBI on Friday proposed mandating a minimum of 20 investors and a subscription amount of at least Rs 20 crore for each such scheme.
Currently, CIS rules do not mandate minimum number of investors, maximum holding of a single investor or minimum subscription amount.
Also, the regulator has suggested that a Collective Investment Management Company (CIMC) or its promoters should meet certain criteria with respect to track record and net-worth, according to a consultation paper.
In addition, the markets watchdog has proposed a cap on cross-shareholding in CIMCs to 10 per cent to avoid conflict of interest and recommended that CIS should not be open for subscription for more than 15 days.
CIS is a pooled investment vehicle in closed-ended investment space and the units of the schemes are listed on an exchange. The structure of CIS is a two-tier one as there are two entities involved in the process -- the CIMC and Trustees. CIMC is created to float and manage a CIS and the trustee is appointed as guardian of the funds and assets. According to SEBI, with no limit on minimum investment by an investor, retail investors are the primary target base for CIS.
CIS Regulations, notified in 1999, have not been reviewed since then. “With a view to removing any regulatory arbitrage among various pooled investment vehicle as available to the retail investors, it is important that the regulatory requirement for CIS as a pooled investment vehicle should be aligned or matched with those for Mutual Funds,” SEBI said.
SEBI has sought public comments on the proposals till January 31. In the consultation paper, SEBI has proposed that each CIS should have a minimum subscription amount of Rs 20 crore and each CIS should have a minimum of 20 investors and no single investor should hold more than 25 per cent of the assets under management (AUM) of such scheme. “In order to avoid the potential risk of controlling the scheme by few individuals or investors, there is a need to maintain minimum number of investors in any
CIS,” SEBI said.