POWERS AND FUNCTIONS OF THE BOARDCentral

Section 11AA of The Securities and Exchange Board of India Act, 1992

(1)Any scheme or arrangement which satisfies the conditions referred to in sub-section (2) ⁴[or sub-section (2A)] shall be a collective investment scheme: ⁴[Provided that any pooling of funds under any scheme or arrangement, which is not registered with the Board or is not covered under sub-section (3), involving a corpus amount of one hundred crore rupees or more shall be deemed to be a collective investment scheme.]
(2)Any scheme or arrangement made or offered by any ⁵[person] under which,—
1. (i)the contributions, or payments made by the investors, by whatever name called, are pooled and utilized for the purposes of the scheme or arrangement;
2. (ii)the contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable, from such scheme or arrangement;
3. (iii)the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors;
4. (iv)the investors do not have day-to-day control over the management and operation of the scheme or arrangement. ⁴[(2A) Any scheme or arrangement made or offered by any person satisfying the conditions as may be specified in accordance with the regulations made under this Act.]
(3)Notwithstanding anything contained in sub-section (2) ⁴[or sub-section (2A)], any scheme or arrangement—
1. (i)made or offered by a cooperative society registered under the Co-operative Societies Act, 1912 (2 of 1912) or a society being a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State;
2. (ii)under which deposits are accepted by non-banking financial companies as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934);
3. (iii)being a contract of insurance to which the Insurance Act, 1938 (4 of 1938), applies;
4. (iv)providing for any scheme, pension scheme or the insurance scheme framed under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952);
5. (v)under which deposits are accepted under section 58A of the Companies Act, 1956 (1 of 1956);
6. (vi)under which deposits are accepted by a company declared as a Nidhi or a Mutual Benefit Society under section 620A of the Companies Act, 1956 (1 of 1956);
7. (vii)falling within the meaning of chit business as defined in clause (e) of section 2 of the Chit Funds Act, 1982 (40 of 1982);
8. (viii)under which contributions made are in the nature of subscription to a mutual fund; ¹[(ix) such other scheme or arrangement which the Central Government may, in consultation with the Board, notify,] shall not be a collective investment scheme.]

↩1.Ins. by Act 9 of 1995, s. 6 (w.e.f. 25-1-1995).

↩2.Subs. by Act 59 of 2002, s. 5, for section 11A (w.e.f. 29-10-2002).

↩3.Ins. by Act 31 of 1999, s. 11 (w.e.f. 22-2-2000).

↩4.Ins. by Act 27 of 2014, s. 3 (w.e.f. 18-7-2013).

↩5.Subs. by s. 3, ibid., for “company” (w.e.f. 18-7-2013).

Summary

A collective investment scheme is an arrangement where money from investors is pooled together and used for the purposes of the scheme.
Investors contribute their money with the goal of receiving profits, income, or property from the scheme.
The property or investment is managed on behalf of the investors, meaning the investors do not have day-to-day control over the management.
Certain standard arrangements, like cooperative societies, insurance contracts, pension schemes, and traditional bank deposits, are explicitly excluded from this definition.

Practical examples

1In February 2024, an entrepreneur named Karan started the "Golden Harvest Farm Project", taking small cash contributions from hundreds of local residents. Karan pooled the money to buy farmland and managed the farming entirely by himself, promising investors a share of the crop profits. Because the funds were pooled and investors had no daily control, this was a collective investment scheme.

2Meena joined a small cooperative society registered under the Co-operative Societies Act in her town, where members pooled money to buy bulk groceries. Even though their money was pooled and managed centrally, the law specifically states that registered cooperative societies are not collective investment schemes.

FAQ

1. If I invest in a business with friends, is it considered a collective investment scheme?

It depends on the structure. If the funds are pooled, managed entirely by someone else for profit, and you do not have day-to-day control over the operations, it meets the criteria for a collective investment scheme.

2. Are my life insurance policies or pension funds collective investment schemes?

No. The Act specifically excludes insurance contracts and statutory pension schemes from being classified as collective investment schemes.

Test yourself

Q1.Under Section 11AA of The Securities and Exchange Board of India Act, 1992, which condition is required for an arrangement to be considered a collective investment scheme?

Q2.Under Section 11AA of The Securities and Exchange Board of India Act, 1992, an unregistered fund pool is automatically deemed a collective investment scheme if it reaches what corpus amount?

Q3.Under Section 11AA of The Securities and Exchange Board of India Act, 1992, which of the following is explicitly excluded from being a collective investment scheme?

Q4.Section 11AA of The Securities and Exchange Board of India Act, 1992 lays out the conditions for a collective investment scheme. How does Section 2 of the Act handle this specific term?

11PreviousSection 11 Functions of Board.11BNextSection 11B Power to issue directions 2[and levy penalty.

←Section 11 Section 11B→