Investors cannot subscribe to units of a collective investment scheme (CIS) by paying cash.
According to SEBI definition, any scheme or arrangement made or offered by any company under which the contributions, or payments made by the investors, are pooled and utilised in order 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.
Tightening the norms for subscription of CIS units, SEBI on Thursday, said: “All monies payable towards subscription of units of collective investment scheme shall be paid through cheque or demand draft or through any other banking channel, but not by cash.”
A CIS is also expected to offer its units in demat form by tying up with a depository, said SEBI. In addition, CIS schemes have to comply with SEBI’s extant KYC norms.
The regulator said a person proposing to launch a CIS has to apply to SEBI for registration under the prescribed format.
SEBI also said that any person who has been operating a scheme or arrangement deemed to be a CIS has to comply with its regulations. Existing collective investment schemes have been directed to apply to SEBI for registration.
However, schemes regulated otherwise or prohibited under any other law shall not be deemed to be collective investment schemes.
The amendments to SEBI’s CIS regulations come into effect immediately.
The SEBI move follows a large number of cases, such as the Saradha scam that came to light recently where gullible investors were defrauded through CIS activities.