What are the objectives of a Collective Investment Scheme?

A collective investment scheme is a process or an investment scheme in which investors, who are known as participants come together and pool in their assets. The objective is to share profits through different activities. Some of the investors pool in all of their fund collection. Any investment proves to be beneficial for various reasons and is important for the survival of companies.

One great example of a collective fund is mutual funds. In mutual funds, investors invest their money and the fund manager takes care of all the investment by further investing it in securities. Later, the investors get returns out of their investments. The Securities Exchange Board of India (SEBI) regulates mutual fund schemes and other investment schemes.

How does a collective investment scheme work?

All individual, known as investors, invest their money which is spread all across the assets. The investment is divided into shares and the total number of shares of every investor represents his ownership of the fund’s assets.

What are the components of a Collective Investment Scheme?

Following are elements of collective schemes –

• These schemes are known as ‘investment funds’, ‘mutual funds’.
• The investment is usually done in assets, bonds, equity, or cash.
• The collective assets owned by the fund are known as a ‘portfolio’.

What are the eligibility requirements for Collective Investment Scheme Registration?

Following are certain minimum requirements that must be followed by individuals who want to start a collective scheme company –

• The management of collective investment scheme must be mentioned as one of the main objects in the Memorandum of Association
• The applicant must prove that he is fit and proper
• The applicant must have a net worth of INR 5 crores. Although, at the time of making an application, the minimum amount of net worth that the applicant must have is INR 3 crores.
• The applicant must have adequate infrastructure to operate several collective investment schemes.
• A minimum of 50% of directors in the collective investment companies must be independent and not involved in any other investment companies.
• The applicant must register the investment company as per the Companies Act, 1956.

Who are the participants in a collective investment scheme?

The following are some important individuals (participants) who are a part of the collective investment scheme.

Collective Investment Management Company

A collective investment company is an establishment that is incorporated as per the provisions of the Companies Act, 1956. The registration of the company is undertaken under SEBI Regulations, 1999.

Trustee

The individual who is responsible to gather all the funds collected from several investors and ensures that the investors are benefited from it is called a trustee.

Fund Manager

 A professional and a qualified individual who is engaged in the management of the investment decisions of various collective investment schemes.

Shareholder

Individuals or individuals who pool in funds into several schemes or one particular scheme is called a shareholder.

What are the objectives of collective investment schemes?

A collective investment scheme has many objectives. In this section, we will talk about some of the objectives behind the establishment of collective investment companies.

• It helps in understanding various types of risks which eventually helps in earning profits or revenue
• It offers various opportunities by which investors can earn returns
• It helps in introducing new and innovative ways to earn revenue

What are the statutory provisions with regards to Collective Investment Scheme?

Section 11AA (2) of the Security and Exchange Board of India states that any scheme offered by any individual under which –

• The payment or investment made by individuals is invested by them to accomplish an objective
• The property, contribution of the scheme is managed by fund managers.

What are the obligations of the collective investment scheme?

Following are certain conditions of collective investment scheme –

Every collective investment management company must –

• Be liable for dealing with assets or properties of the plan or the scheme for the benefit of the investors
• Undertake strategies and plan the schemes in such a manner that the investors get their expected returns

Conclusion

A collective investment scheme is a plan that must have plans and strategies which are well organized. They must great results for the investors. Collective investment companies must follow all guidelines prescribed by SEBI.