The Securities and Exchange Board of India (Sebi) on Tuesday has for the first time since 1999 revised norms for the Collective Investment Schemes (CIS) in line with mutual fund regulations, primarily to “remove regulatory arbitrage.” The regulator in its board meeting also approved several other measures, including the proposal to simplify the procedure for transmission of securities.
Tighter norms for these investment schemes will mean safer investment avenues for investors. A higher net worth and a past track record will prevent fly by night operators from running these schemes. According to Sebi, for registration as a Collective Investment Management Company (CIMC), the enhancement of net-worth criteria and the requirement of having a track record in the relevant field will now be the two eligibility criteria.
Further, CIMC and its group/ associates/ shareholders will be restricted to 10% shareholding or representation on the board of another CIMC to avoid conflict of interest, Sebi said.
According to Moin Ladha, Partner, Khaitan & Co, “The rules on collective investment schemes needed tightening.
Regulations for these schemes will now be brought on par with mutual funds. All these changes will bring about a better monitoring system and make them safer from an investor perspective. These amendments will encourage large players to set up such schemes and thereby mobile investment from retail investors.”
Earlier in January this year, the regulator had issued a discussion paper on CIS to further align or match them with mutual fund regulations. Currently, several companies have been raising money through agro bonds and plantation bonds, which were in the form of a CIS without authorisation. Collective investment schemes are typically pooled investment vehicles, offering exposure to retail investors in a wide variety of underlying assets.
According to Sebi, to simplify the procedure for transmission of securities, the existing threshold limit for simplified documents is revised from Rs 2 lakh to Rs 5 lakh for securities held in physical mode per listed issuer, and Rs 5 lakh to Rs 15 lakh for securities held in the dematerialised mode for each beneficiary account. Additionally, the Legal Heirship Certificate or an equivalent certificate issued by a competent government authority will be accepted the for transmission process.
Besides, the market regulator also allowed custodians to provide custodial services in respect of silver exchange-traded fund schemes (ETFs) of mutual funds. The Sebi budget for the financial year 2022-2023 was also approved on Tuesday.