Sebi bars cash transactions for collective investment plans

Lately, large number of gullible investors have been defrauded through illegal CIS activities

The Securities and Exchange Board of India on Thursday made compulsory for all investments into collective investment scheme(CIS) funds to be made through banking channels, and not in cash, to thwart any money laundering activities through such schemes. Besides, the new norms would also help improve transparency in fund garnering activities through CIS activities and would make it easier to identify the source of funds and real investors involved in such schemes.

A large number of cases have come to light in past few years where gullible investors have been defrauded through illegal CIS activities, while their operators claim to have returned the money when caught by regulators and law enforcement agencies.

The new norms, which have come into effect today, will be called the Securities and Exchange Board of India (Collective Investment Schemes) (Amendment) Regulations, 2014.

As per the regulation, "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."

For launching any such scheme, a person needs to make an application for registration as a Collective Investment Management Company provided that any scheme which is otherwise regulated or prohibited under any other law will not be deemed to be a CIS.

The Collective Investment Management Company will enter into an agreement with a depository for dematerialisation of the units of the scheme proposed to be issued.

Also, the regulator said that the Collective Investment Management Company will comply with Know Your Client guidelines.

The government ordinance, promulgated in September for second time, provides for regulation of pooling of funds under any scheme or arrangement, involving a corpus amount of Rs 100 crore or more, to be deemed to be a CIS activity.