Collective Investment Schemes in Detail

Overview

As we all know, the collective efforts of an individual are always beneficial for the betterment of the whole group. Thus, a collective investment scheme is a plan that collects the pool of assets that are to be managed by collective investment scheme managers and is governed by the co-operative investment regulation given by the securities and exchange board of India. These methods are introduced by the guards and exchange board of India for the protection of the investors.

It is work where a group of people come together and pool their money for investing in a particular asset and share the returns. 

Objectives

Every investment involves some risk factor in it. To earn profit in collective investment, a scheme is the best investment plan for your assets. Thus, the system is such a kind of policy that mainly focuses on mutual investment. It offers you to earn more profit with less investment. As a group of people does finance, thus it minimizes the factor of risk and maximizes your benefits.

Collective investment schemes state where investors come together to pool their assets. Therefore, this scheme provides you with the safety of assets by ignoring many risks. It is the scheme where the investors share returns and profits as per the agreements they are finalized. 

  • Regulation is to organize, operate, and manage the collective investment scheme.
  • Various rules and regulations are set for registration in the investment scheme. 
  • The primary focus for the participants who play the significant role in the investment scheme.
  • The main aim is to earn more and more profits in the system.

Important Provisions

Under Section 11 AA (2) of the security and exchange board of India state that any scheme offered and arranged by any person under these guidelines:

  • The payments made by the investors by any name called are polled for achieving the objective of the plan or course of the action.
  • The commitments or payments or contribution is made to such a plan or course of action by investors to get the benefits like salary or income. Produce the property, whether they are movable or not from that plan.
  • Investors don't have the power over the administration and activity of the plan or course of action.

Section 11AA (2A) states that

  • Any arrangement or scheme offered or made by a person for investment satisfies the conditions as may be satisfied under rules and regulations made under the scheme.

Section 11AA (3) states

  • Any course of action or plan or arrangement of sub-segment (2) or (2A) not relevant 
  • Which are offered by co-operative society enlisted under the co-operative societies act, 1912?

Participants

  • The collective investment management company: Collective investment management is characterized as an organization that is under the incorporated under the company's act.
  • Fund manager: A fund manager or investment manager is one who personalized deals with collective investment scheme management.
  • Trustee: A trustee is a person who holds the property of the investment scheme in trust to support the unitholders.
  • Shareholder: Shareholders are those holders of the investment company, who hold the maximum shares in the company.

Advantages

  1. Collective investment scheme is a group scheme. Hence, it minimizes the chance of risk involved while investment.
  2. Investors will pool the money for investment and equally share the profit and returns.
  3. All investments are made under the act, so no fraud of funds can happen.

Disadvantages

  1. A collective investment scheme is done in a group so it will divide your profits with many.
  2. You never know the other investors, so it leads to misleading of the situation. 

Rules and Regulations

Every collective investment schemes must be enrolled according to the guideline and regulation of CIS. As per the guidelines of CIS, no other individual of mutual investment Management Company has got the registration certificate under CIS regulations. 

Official Website

Read this official document to learn more about these schemes.

Frequently Asked Questions

Q. Does Collective Investment Schemes involve risk?

Yes, every investment scheme involves some risk. A collective investment scheme is the best source to invest the assets for a more extended period and earn the maximum profits and returns.

Q. How do Collective investment schemes work?

Your money is pooled together with that of other investors and spread over the whole range of assets within your fund.

Q. What is the duration of a collective investment scheme?

As the rules and regulations of CIS, any person who has been operating a collective investment scheme at the time of commencement of the CIS Regulations was required to make the applications of SEBI under provisions of regulations.

Q. Is ETF a collective investment scheme?

An exchange-traded fund is a form of a collective investment scheme which is structured to facilitate the trading of the shares on an exchange throughout the day.