sebi: Sebi is considering measures to strengthen the regulatory framework of the CIS

New Delhi: To strengthen the regulatory framework for collective investment undertakings (CIS), market regulator Sebi on Friday proposed to mandate a minimum of 20 investors and a subscription amount of at least 20 crore rupees for each of these schemes .

Currently, the fund rules do not impose a minimum number of investors, a maximum holding of a single investor or a minimum subscription amount.

In addition, the regulator has suggested that a collective investment management company (CIMC) or its promoters meet certain criteria with respect to track record and net worth, according to a consultation document.

In addition, the market watchdog proposed to cap cross-shareholdings in CIMCs at 10% to avoid conflicts of interest and recommended that CIS not be open for subscription for more than 15 days.

CIS is a common investment vehicle in a closed investment space and the units of the plans are listed on the stock exchange.

The structure of CIS is two-tiered as there are two entities involved in the process – the CIMC and the Trustees. CIMC is created to float and manage a mutual fund and the trustee is appointed custodian of funds and assets.

According to Sebi, with no minimum investment limit by an investor, retail investors are the main target of mutual funds.

The CIS regulations, notified in 1999, have not been revised since then.

“In order to remove any regulatory arbitrage between various pooled investment vehicles available to retail investors, it is important that the regulatory requirements for UCIs as a pooled investment vehicle are aligned or brought together. in line with those of mutual funds, ”Sebi said.

The Securities and Exchange Board of India (Sebi) has invited public comments on the proposals until January 31.

In the consultation document, Sebi proposed that each UCI have a minimum subscription amount of Rs 20 crore and that each UCI have a minimum of 20 investors and that no investor own more than 25 percent of the assets under management (AUM ) of such a plan.

“In order to avoid the potential risk of controlling the program by a few individuals or investors, it is necessary to maintain a minimum number of investors in any mutual fund,” Sebi said.

In addition, the regulator has suggested that CIMC should have a minimum net worth of Rs 50 crore compared to the current requirement of Rs 5 crore.

It must operate in the relevant field in which it is proposed to launch CIS systems, for a period of at least five years; Net worth is expected to be positive in all of the previous five years and is expected to generate profit in three of the five years, he said.

At present, such a requirement does not exist with respect to the relevant business, net worth or profitability.

To avoid conflicts of interest, Sebi proposed that a CIMC, its shareholders holding 10 percent or more, its partner or group, individually or collectively, directly or indirectly, not be allowed to own 10 percent or more. of the capital of a rival CIMC. .

He further stated that these entities should not be represented on the board of directors of another CIMC.

In order to align the interest of the CIMC and its key employees with the unitholders of the mutual fund, the regulator suggested that the CIMC should have an ongoing interest of at least 2.5 percent of the corpus or Rs 5 crore, whichever is lower. , in the form of an investment in CIS.

In addition, a minimum of 20 percent of the salary of designated CIMC employees should be compulsorily invested in CIS units in which they have a role / oversight.

In addition, the regulator recommended that the UCITS not be open for subscription for more than 15 days. It is 90 days now.

In addition, the unit certificates against acceptance of the request will be allocated as soon as possible but no later than five working days from the date of closure of the initial subscription list.

The proposals aim to strengthen the regulatory framework for collective investment undertakings as well as empower CIMCs to effectively discharge their responsibilities to investors.

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