Sebi proposes strict norms for collective schemes

Market regulator the Securities and Exchange Board of India (Sebi) has sought a complete overhaul of the current regulations for 'collective investment schemes', as it fears that loopholes in current rules allow for gullible investors being taken for a ride.

In a 'Collective Investment Scheme (CIS), the payments are pooled in by the investors for certain pre-specified purposes and profits or income are later shared among them.

However, there have been numerous cases of investors being cheated in the name of CISs and in many cases the operators of these schemes disappear after some time and the investors are left in a lurch.

A senior official at Sebi said that more than one lakh investor complaints are currently pending with it, and in most of the cases the matter is sub-judice since long.

While the Sebi is the regulatory authority for such schemes, a number of other government agencies and departments also govern similar investment products and a lack of clarity in this regard comes in the way of brining the guilty to book, the official added.

Some of the most famous CISs are related to investments for real estate properties, plantation and agriculture industry and art funds, among others.

In a board memorandum submitted during its last meeting on January 3, Sebi said that "it is clear that certain individuals/companies are able to raise money from gullible individuals by taking advantage of the loopholes in the legal provisions and also taking advantage of lack of clarity about roles of different agencies like MCA, Sebi, RBI, state governments, registered co-operative societies etc."

Sebi further told its board, which includes nominees from the MCA (Ministry of Corporate Affairs), Finance Ministry and RBI, that certain exemptions in the current regulations also "leave scope for people to take a stand that their scheme is not a collective investment scheme and that they have got relevant licenses/approvals from the competent authorities."

"There appears to be a need to bring this matter under one principal regulator to deal with all cases where pooling of money is taking place and investments are being made," Sebi said.

It further said that various exemptions also needed to be either completely removed or drastically pruned and "in case of pruning, there is need to provide criteria such as maximum number of investors or the minimum amount intended to be raised beyond which all have to get registered with the principal regulator."

As per Sebi, there is only one entity registered with Sebi as a Collective Investment Management Company, but it has not launched any scheme as yet.

On the other hand, as many as 32 cases are currently under examination for applicability of Sebi (CIS) Regulations, while there are 1.09 lakh complaints pertaining to CIS.