MUTUAL FUNDS COLLECTIVE INVESTMENT
SCHEME, PORTFOLIO MANAGEMENT
REGULATIONS AN INTRODUCTION
R K NAIR, EX- ED,
SEBI
What is Mutual Fund?
Investors
Pooling of
Money
Passed
back to
Return
Mutual Fund
Generate
Invest in
Securities
March 11, 2016
Fund
Manager
Various Investment Alternatives
Equity
Derivatives
Bonds and Debentures
Commodities
Government approved Saving Schemes – NSC etc.
Mutual Funds
Provident Fund (like EPFO)
Collective Investment Schemes (CIS)
Fixed Deposits with Banks
Gold and other Precious Metals
Real Estate Assets
March 11, 2016
Why Mutual Fund?
Diversification
Professional
Management
Convenience
WHY
Tax
Advantages
Return
Potential
Flexibility &
Liquidity
March 11, 2016
Positioning of Investments
Hedge Funds,
Private Equity, etc.
Return
Equity
Equity Funds
Structured Financial Products
Bonds
Debt Funds
Fixed Deposits
Risk
March 11, 2016
Structure of Mutual Funds in India
SEBI
Sponsor
Investment
Management
Agreement
Trust Deed
AMC
Custodian
Trustee
Mutual Fund
Investment &
Advisory Services
RTA
Scheme 2
March 11, 2016
Scheme 1
Scheme 3
Scheme 4
Evolution of MF Industry in India
AUM (Rs. Cr.)
1400000
III–––1963-1986
1993
PHASE II
IIV
1987-1992
2003 -2002
onwards
1200000 1987
1993 PSU
Private
sector
and allowed
foreign
players
allowed.
1963UTI
banks
is India’s
andfirst
insurers
mutual
mutual
Number
of
measures
taken
byfund
SEBI to
tofloat
streamline
and
Kothari
Pioneer
firstblocks
private
fund house to start
funds;
first
the
adopt SBI
the
Bestoff
International
Practices
1964 UTI launches US-64
operations; First set of SEBI (MF) regulations come in
1000000 1992
SEBI setnames
up to regulate
Big foreign
like JP industry
Morgan, BlackRock, Mirae,
to force
1971
UTI’s ULIP is second scheme to be launched
Robeco, Nomura, BNP Paribas, AEGON, AXA, etc.
800000 1986
1994 UTI
Morgan
Stanley isIndia’s
the first
foreign
player fund
Mastershare,
first
true mutual
established
presence
scheme launched
1996 Comprehensive
set of
SEBI’s
fund rules
AUMs
increased at a very
high
rate mutual
due to boom
in the
600000 and
regulations
come
force inflows to debt funds
equity
market and
highinto
corporate
1999 The
takeover amongst
of 20th Century
by Zurich
Tough
competition
AMCs to AMC
increase
Market
Mutual Fund is the first acquisition in the mutual fund
Share
industry
200000 Setting up of SRO for distributors of MF products
Policy developments to increase penetration in Tier II
0 and Tier III cities
Long Term Policy
March 11, 2016
Jun, 15
Mar, 15
Mar, 14
Mar, 13
Mar, 12
Mar, 11
Introduction of new products
Mar, 10
Greater emphasis on investor education and awareness
Mar, 09
Mar, 08
Mar, 07
Mar, 06
Mar, 05
Mar, 04
Mar, 03
Mar, 02
Mar, 01
Mar, 93
Mar, 87
Mar, 65
400000
Overview of Functions
•
•
•
•
•
Greater Responsibility & Supervisory Role placed on the Trustees
Day to Day Management with the AMC
Periodical Reporting by the AMC to the Trustees
Periodical Reporting by the Trustees and AMC to SEBI
The responsibility of overall supervision, investor protection,
market development, etc. is with SEBI
March 11, 2016
Types of Schemes
Maturity Period
• Open-ended
• Close-ended
• Interval
Investment Objective
• Income/Debt Oriented: Money Market/Liquid, Gilt, Bond Funds, IDF, etc.
• Growth/Equity Oriented: Equity Funds, Index Funds, Equity Linked Savings Scheme (ELSS),
RGESS, Others
• Sectoral: Banking, FMCG, Infrastructure, etc.
• Balanced/Hybrid
• Exchange Traded Fund (ETFs): Index ETFs, Gold ETFs
• Fund of Funds
New Products
• Asset Allocation Fund (Open Ended)
• Trigger Fund (Close Ended)
March 11, 2016
Overview as on Dec 30, 2015
Registered Mutual Funds
(including IDFs)
50
Registered IDFs
3
Active Mutual Funds
44
No. of Schemes
AUM
2023
INR Approx
14,73,294 Cr.
Open
Close
Interval
866
1085
Open
Close
72
Interval
Approx Approx
12,26,115 2,39,688
Debt AUM
INR 10,52,513 Cr.
Equity AUM
INR 4,22,313 Cr.
ETF AUM
INR 13,839 Cr.
Gold ETF AUM of INR 6,516 Cr.
No. of Folios
4.53 crore approx.
March 11, 2016
7,491
Comparison – MF, PMS & AIF
MF
PMS
AIF
CIS
Raise monies through
sale of units to public
under one or more
schemes for investing in
securities.
The management or
administration of a
portfolio of a client
pursuant
to
a
contract
or
arrangement with a
client.
A
privately
pooled
investment
vehicle.
A scheme or arrangement under
which the contributions made by
the investors are pooled and
utilized with a view to receive
returns and is managed on
behalf of the investors is a CIS.
Each scheme have One
to
minimum 20 investors arrangement.
with no investor having
more than 25% of AUM
of the scheme.
Targeted
for
retail Targeted
investors, but majority high
of investments are from investors.
non-retail investors.
one No scheme shall It is a pooled investment vehicle,
have more than but there is no broad based
one
thousand criteria.
investors.
towards Targeted towards Targeted for retail investors.
networth high
networth
investors.
Entry size is as low as Entry size is not less Entry size is not Entry size is low.
Rs.500 through SIP.
than Rs.25 lacs.
less than Rs. 1
crore.
March 11, 2016
US 64
 The Unit Scheme, 1964 (US-64) published on May 30, 1964, in the Gazette of
India
 The transactions used to start in July every year after the UTI declared the sale
and repurchase prices of its units
 Since 1992, from a debt oriented scheme, the US-64 slowly became an equity
oriented scheme. Due to the market volatility and after the dreamy phase of
the 1992 boom was over, the net asset value (NAV) of the US-64 units
constantly went down and finally turned negative in 1998.
 In September, 2002, The government issued an ordinance to restructure UTI
which included repealing of the UTI Act and bifurcating the Trust into UTI-I and
UTI-II.
 UTI-I to comprise US-64 and other assured return schemes with a total asset
base of around Rs 25,000 crore. All NAV-based schemes with a total asset base
in excess of Rs 17,000 crore to go under the umbrella of UTI-II.
March 11, 2016
US 64 Cont…
 UTI-I was renamed as a Specified Undertaking of the Unit Trust of India
(SUUTI) and UTI-II was renamed as UTI MF.
 In May 2003, Unit Trust of India (UTI) offered to buy back US-64 units at Rs 12
for those with holdings up to 5,000 units, and the remaining units at Rs 10.
 Alternatively, investors had the option of taking 6.75% tax-free bonds in lieu of
their investments. These were the bonds which matured on May 31, 2008.
 US-64 bonds were not the only bonds that UTI issued. It also issued 6.6% taxfree bonds against the assured return schemes. These bonds matured on
March 31, 2009.
 On May 31, 2008, the five-year US-64 tax-free bonds, issued to investors when
the scheme ran into trouble, come up for redemption. Around Rs. 8000 Crores
worth of US-64 bonds were redeemed as on 31st May, 2008.
March 11, 2016
Evolution of Regulatory Framework for CIS
• During the early nineties, many Plantation/Agro based
companies collected huge amounts of money from Indian
Public through various plans/ schemes.
• GOI vide PR dated Nov 18, 1997 stated that issuance of the
instruments such as agro bonds, plantation bonds, etc.,
would be treated as CIS activities under the purview of
SEBI.
• SEBI vide PR dated November 26, 1997 and December 18,
1997 directed all existing schemes to comply with the
provisions of Section 12(1B) of the SEBI Act and file the
details of their schemes with SEBI.
• SEBI (Collective Investment Schemes) Regulations, 1999
were notified on October 15, 1999.
• As on date only one CIMC is registered with SEBI (Gift
Collective Investment Management Company Limited), but
no scheme launched.
3/11/2016 12:30 AM
CIS – Definition
Under Section 11AA(2) of the SEBI Act, 1992, CIS is:
Any scheme or arrangement made or offered by any company
under which:
•Any contributions - pooled and utilized for the purpose of the
scheme or arrangement;
•With a view to receive profits, income, etc. - whether movable
or immovable;
•Contribution, investment - being managed on behalf of the
investors;
•Investors - do not have day-to-day control over the
management and operation of the scheme.
In terms of the Securities Law (Amendments) Act, 2014, any
pooling of funds under any scheme or arrangement, which is not
registered with the Board or is not covered under exemption
categories specified under the Act, and is not regulated by any
other authority or otherwise banned under any prevailing law in
the country, involving a corpus amount of one hundred crore
rupees or more shall be deemed to be a collective investment
scheme.
3/11/2016 12:30 AM
CIS – Definition Cont….
As per Section 11AA(3) of the SEBI Act, 1992, the following
scheme or arrangement shall not be a CIS:
Sl. No. Registered/ unregistered activities
1
2
3
4
5
6
7
8
9
Respective Sectoral Regulators
Schemes offered by Registered Respective SGs
Cooperative Society
Deposits accepted by NBFCs
RBI
Contract of Insurance
Pension Scheme or Insurance Scheme
framed under EPF
Deposits accepted under 58A of
companies Act
Nidhi or mutual benefit society
IRDA
IRDA/EPFO
MCA
Respective SGs/CG
Chit Business
Respective SGs
Mutual Fund
SEBI
Such other scheme or arrangement which the Central Government may, in
consultation with the Board, notify
3/11/2016 12:30 AM
Issues & Challenges
related to CIS
Regulations
CIS as a term
• Generic Sense – Any scheme or plan where money is
collected from people for investment purpose.
• SEBI CIS sense - “Any scheme or arrangement made or
offered by any person under which:
• Any contributions - pooled and utilized for the scheme or
arrangement;
• With view to receive profits- whether movable or immovable;
• Contribution managed on behalf of the investors;
• Investors do not have day-to-day control”
• International Scenario – CIS includes other money pooling
vehicles. For example in Australia CIS includes MFs, REITs,
Hedge funds
CIS - Internationally
India
United States
Australia
Hongkong
No particular
kind of schemes
defined
Mutual
funds (legally
known as openend companies);
Closed-end
funds (legally
known as
closed-end
companies);
UITs (legally
known as unit
investment
trusts)
1.Agribusiness schemes
2. Charitable and educational
schemes
3. Closely related schemes
4. Direct real property schemes
5. Film schemes
6. Financial asset schemes
7.Foreign collective investment
schemes
8.Hedge funds
9.Horse schemes
10. IDPS schemes and IDPS like
schemes (Investor Directed Portfolio
Services)
11.Infrastructure entities
12.Managed discretionary accounts
13.Money market funds
14.Mortgage schemes
15.Primary production schemes
16.Serviced strata schemes and
management rights schemes
17.Time-sharing
schemes
CIS Division
18.Trustee common funds
Unlisted products
1.Unit Trusts and Mutual
Funds
2. Investment Linked assurance
schemes
3. Structured Investment
Products
4. Mandatory Provident Funds
5. Pooled Retirement Funds
6. Unlisted Shares and
Debentures
7.Investment Linked Deposits
8.Paper Gold Schemes
March 11, 2016
Listed products
1.Exchange Traded Funds
2. Real estate investment
trusts
3. Closed - end funds
4. Listed shares and
debentures
PGFL Order
• SC has directed that CIS is not restricted to any particular
commercial activity such as in a shop or any other
commercial establishment or even agricultural operation or
transportation or shipping or entertainment industry.
• Implications – Any activity which fulfills the conditions of CIS
and is not prohibited or regulated by any other law is a CIS
activity
Category of SEBI CIS orders
 Under the garb of real estate: Rose Valley Real Estate, Saradha
Reality India Ltd., PACL etc
 Under the garb of time Share: Rose Valley Hotels and
Entertainment, Royal Twinkle, Pancard Club Ltd., Citrus Check
Inns Limited etc
 Potato Farming: Sumangal Industries
 Goat Farming: Samrudha Jeevan, Prosperity Agro
 Plantation : MPS Greenery, Golden Forest
 Art Fund: Osian Art Fund, Arohan Trustee Pvt. Ltd, Yatra Art
Fund
July 03, 2015
Chit / MLM / Ponzy
• Prize Chit – Defined in PCMCSB Act, 1978
• Collection of money in lump sum or installments by operator and uses the
money for investment or any other purpose
• Distributing the proceeds to specified number of subscribers as determined
by lot , draw or any other manner
• Conventional Chit – Defined in Chit Fund Act, 1982
• A specific no. of persons subscribe a certain sum of money periodically for
a definite period and each subscriber, in his turn, as determined by lot or
auction , is entitled to prize amount
• MLM /Pyramid marketing / Chain marketing
• product is only a way to disguise intention
• Compensation plans are designed to inevitably motivate the participants in
the scheme to concentrate on recruiting more participants rather than on
direct selling
• Most of the sales occur only between people inside the pyramid structure
Chit / MLM / Ponzy contd.
• Direct marketing – Most of the sales will occur to consumers among
general public
• Ponzy Scheme – Where the operator pays to its existing investors by
collecting money from new investors – “ Robbing Peter to pay Paul”
• Money Circulation Scheme – defined in PCMCSB Act, 1978
• Quick and Easy Money creation
• Enrolment of members in the scheme
• Judgment
• Supreme Court Judgement in Kurian Chacko Vs State of Kerala
(2008)
• Example
• Gold Quest International Private Limited – Selling Gold coins
over priced 5-6 times, people purchased the products to
become sales representative
• Speak Asia offering return of 373 % in one year
Prize Chits and Money Circulations (Banning)
Act, 1978
• Central Act But administered by State Governments
• The act bans promotion or conduct of any prize chit or
money circulation scheme and provides for imprisonment
and penalty in case of failure to comply with the provisions
• The act bans any prize chit or money circulation scheme or
enrolment or participation as members in those schemes or
receiving or remitting money under those schemes
• MLM activities are understood to fall under the purview of
State Govts. under this Act
Protection of Interest of Depositors Act
• Many States have their respective laws for protection of investors’
interest e.g. Madhya Pradesh Nikshepkon Ke Hiton Ka Sanrakshan
Adhiniyam, 2000, Maharashtra Protection of Interest of Depositors Act,
1999 and the Himachal Pradesh [Protection of Interests of Depositors
(In Financial Establishments)] Act, 1999
• As per Maharashtra Protection of Interest of Depositors (in Financial
Establishments) Act, 1999, “Deposit” includes and shall be deemed
always to have included any receipt of money or acceptance of any
valuable commodity by any Financial Establishment to be returned after
a specified period or otherwise, either in cash or in kind or in the form
of interest, bonus, profit or in any other form, but does not includeSuch as Advance received against goods or services (five category of
exemptions).
• As on December 31, 2014, 22 States and Union Territories have enacted
such acts.
PID Act Contd.
• State Governments have powers to attach property of such
entities, dispose them off under the orders of special courts &
distribute the proceeds to depositors.
• Invoking PID Act when money is being collected: As per
Maharashtra PID Act, State may attach the properties "where the
Government has reason to believe that any Financial
Establishment is acting in a calculated manner detrimental to the
interest of the depositors with the intention to defraud them“.
Therefore, even at the time of collection of deposit the PID Act
can be invoked provided that the money being collected falls
within the ambit of deposit.
• Emu Farming- Actions taken by Tamil Nadu State Govt. under the
Tamil Nadu Protection of Interest of Depositors Act.
Definition of Deposit
• RBI Act, 1934
• As per section 45I(bb) of RBI Act 1934, ‘‘deposit’’
includes and shall be deemed always to have included
any receipt of money by way of deposit or loan or in any
other form, but does not include, (five category of
exemptions)
• Companies Act 2013 and the Acceptance of Deposit
Rules , 2014 made there under
• As per Sec 2 (31) of the Companies Act , “Deposit’
includes any receipt of money by way of deposit or loan
or in any form by a company , but does not include such
categories of amount as may be prescribed in
consultation with RBI. (14 category of exemptions)
Issues in existing CIS Regulations
• Listing Requirements
• Mandatory for all Registered CIS
• Compliance as per listing agreement of exchanges
• Appraisal Norms
• All assets to be appraised before starting Business
Activities
• Credit Rating Requirements
• Need rating from CRA on a continuous basis for all
Schemes
• Compliance requirements leads to high costs of
operations.
Challenges related to CIS
• “Pooling” is not defined under CIS Regulations or under SEBI Act
• Camouflaged schemes: Layering of Sale of goods/services (e.g. Selling of room nights )
• Hybrid Schemes having elements of CIS , Money Circulation Scheme and Deposits leading to a
gap regarding ownership of cases among regulatory agencies
• Coordination amongst Regulators/Agencies
• Complaints received after defaults
• No market intelligence system in place for early detection
• Enforcement of action:
i. Prevention from further raising of money
ii. Refund of money raised
• Entity/promoters absconding after SEBI orders
• Entities / Directors not responding to SEBI letters/ Undelivered Letters
• SEBI Orders / Public Notices in Vernacular languages
• No action against Agents / Sub Agents of entities
• Public perception that SEBI is the sole Regulator for unauthorized money Mobilization leading
to huge amount of vague complaints , complaints pertaining to other jurisdictions
May 25, 2015
Opportunities
• Huge Amounts of money can be channelized in the
economy
• Large number of people can be brought into the
system
• Can serve as an an effective tool of financial
inclusion
Road ahead
CIS Awareness Campaign
Effective Coordination
among regulators /
Enforcement Agencies
Efficient Enforcement of SEBI
orders
 Aimed at generating awareness among public through print media,
advertisement in various channel of radio/television. More targeted
campaigns are required such as campaigns at places where huge
congregation of people assembles, such as Trade fairs etc.
 The issue of ownership of case should be sorted out at preliminary
stage after discussing with other regulators, Enforcement Agencies so
that there should not be problems in enforcement of orders. State
level co-ordination committees are formed for this purpose.
 SEBI directions against unauthorised CIS activities needs to be
efficiently enforced on such persons so as to create an effective
deterrence for people to engage in such activities.
Detection of early warning
signals
 SEBI along with the other Regulators / Enforcement agencies is in the
process of developing early warning signals
Need for amendment of CIS
Regulations to develop
legitimate
CIS activities
March 11, 2016
 Only one CIMC is registered with SEBI and no scheme has been
launched till date . Suitable amendments should be made in the CIS
Regulations to attract companies to register and carry out legitimate
CIS activities. SEBI is in the process of reviewing the SEBI (CIS)
regulation, 1999.
Case of M/s. Pearls Agrotech Corporation Ltd. (PACL)
About the Matter
The main allegation against PACL was that the plans/ schemes
operated by it were in the nature of CIS and that PACL is offering
these schemes without obtaining registration from SEBI.
•PACL has 5.85 crore total customers. Details were not available.
•The total amount mobilized comes to a whooping of ₹49,100
crore.
•As on March 31, 2014, it had around 4.63 crore customers and
an amount of ₹29,420.65 crore stands outstanding.
•The value of total lands in the form of 'stock-in-trade' as on
March 31, 2014 is ₹11,706.96 crores which comprises of two
categories: i.e. agricultural lands (₹7,322.11 crores) and
commercial lands (₹4,384.84 crores).
3/11/2016 12:30 AM
Chronology of Events – PACL Matter
• It came to the knowledge of SEBI that PACL Limited was running CIS and
had failed to submit the information/details of its schemes with SEBI in
terms of the press release dated November 26, 1997 and the public notice
dated December 18, 1997.
• PACL in its first reply challenged the jurisdiction of SEBI, by stating that its
transactions are in the nature of sale and purchase of agricultural land and
thus outside the purview of the securities market.
• In the year 1998 a PIL was filed before the Hon'ble Delhi High Court by one
Mr. S.D. Bhattacharya against SEBI and Anrs. bringing into light, the
activities of various agro-plantation companies who had duped the hard
earned money of several investors and also filed an application for
impleading 478 agro-plantation companies in the matter.
• The Hon'ble Delhi High Court vide an order dated October 07, 1998, inter
alia directed all plantation companies, agro companies and companies
running CIS to comply with SEBI directives and also directed to issue
notices to such companies through publication in the newspaper. PACL was
also in the list of 478 companies.
• PACL vide its application dated December 08, 1998, approached Hon'ble
Delhi High court for deletion of its name from the list.
• Hon'ble Delhi High Court vide order dated May 26, 1999, had directed SEBI
to appoint auditors for ascertaining the genuineness of the transactions
executed by PACL.
3/11/2016 12:30 AM
Chronology of Events – PACL Matter Cont…..
• SEBI in its report dated February 22, 2000 submitted to Hon'ble
Delhi Court, highlighting various deficiencies/ discrepancies such
as the cost of the land was taken to be uniform irrespective of its
location, huge commissions were being paid to agents by PACL out
of the funds collected from the public, etc.
• Latter on the Hon'ble High Court of Delhi appointed Justice K.
Swamidurai (Retd.) to physically verify the genuineness of the
agreement to sell and the transactions entered into and also to
supervise the registrations of the sale deeds.
• SEBI vide its various communications to PACL, had advised PACL to
comply with the SEBI (CIS) Regulations.
• PACL vide its letter dated December 13, 1999, replied to SEBI
which inter alia stated that SEBI has no jurisdiction to scrutinize its
transactions.
• PACL had also challenged SEBI letters before the Hon'ble High
Court of Judicature for Rajasthan at Jaipur by filing a Writ Petition,
in December 1999, claiming therein inter alia that its scheme does
not fall under the definition of CIS and also challenged the
constitutional validity of the CIS Regulations.
3/11/2016 12:30 AM
Chronology of Events – PACL Matter Cont…..
• SEBI vide order dated June 24, 2002, held that the schemes
floated by PACL fall squarely within the definition of CIS as defined
under Section 11AA of the SEBI Act and advised PACL to comply
with the provisions of the CIS Regulations subject to the directions
of the Hon'ble High Court of Judicature for Rajasthan at Jaipur.
• On September 20, 2002, Justice K. Swamidurai submitted his final
report stating therein that the transactions entered into by PACL
with its customers were genuine.
• March 03, 2003, the Hon'ble High Court of Delhi modified its
earlier orders in this matter and allowed PACL to execute the sale
deed in favour of the customers duly verified by Justice K.
Swamidurai.
• SEBI filed an application for modification/ clarification of such
order of Hon'ble High Court of Delhi. The Hon'ble High Court of
Delhi vide order dated May 30, 2003 inter alia clarified that
neither this Court held PACL India Limited to be a CIS company nor
it was held that it is not a CIS company. This would be for SEBI to
decide and our order discharging notice would not stand in the
way of SEBI to so decide.
3/11/2016 12:30 AM
Chronology of Events – PACL Matter Cont…..
• Subsequently, the Hon'ble High Court of Judicature for Rajasthan
at Jaipur vide its order dated November 28, 2003 inter alia held
that the schemes of PACL were not CIS as they did not possess the
characteristics of a CIS as defined under Section 11AA of the SEBI
Act and quashed the letters issued to PACL by SEBI.
• SEBI preferred an appeal before the Hon'ble Supreme Court of
India against the order of Hon'ble High Court. The Hon'ble
Supreme Court of India vide order dated February 26, 2013, set
aside the order of Hon'ble High Court and ordered that the
proceedings dated November 30, 1999 and December 10, 1999
can themselves be treated as show cause notices apart from
permitting the appellant to issue a comprehensive supplementary
show cause notice to the first respondent Company within a period
of three months after carrying out necessary inspection,
investigation, inquiry and verification of the accounts and other
records of the first respondent Company.
• After completion of its investigation, SEBI issued an SCN dated
June 14, 2013 to PACL Limited and its directors namely Mr. Anand
Gurwant Singh, Mr. Gurnam Singh, Mr. Tarlochan Singh, Mr.
Sukhdev Singh, Mr. Nirmal Singh Bhangoo, Mr. Gurnam Singh, Mr.
Uppal Devinder Kumar, Mr. Tyger Joginder, Mr. Gurmeet Singh and
Mr. Subrata Bhattacharya.
3/11/2016 12:30 AM
Chronology of Events – PACL Matter Cont…..
• On sample verification of the documents of few
customers, the following documents are observed:
•
•
•
•
•
•
Application Form
Pre-printed Agreement
Registration Letter
Letter of Allotment of Plots
Receipt
Special Power of Attorney, etc.
• Two plans were offered
• Cash Down Payment Plan (CDPP)
• Instalment Payment Plan (IPP)
3/11/2016 12:30 AM
Chronology of Events – PACL Matter Cont…..
Observations
•In certain cases, in the application form at the place of plan,
FD/ RD is written, which gives an impression that the scheme
operated by PACL were nothing but money mobilization
schemes.
•PACL invites investment in terms of its rule book, under which
one of the aims of PACL is to offer maximum return on
investment and benefits to the customers.
•At the time of application, PACL had not disclosed the location
of the land/ land availability. This indicated that PACL pools the
money from the customers for the purchase of the land.
•The registration letter states the expected value of the land,
although the land is not allotted even at such stage and the
location of the plot/ land remains undisclosed.
•As per the agreement, PACL reserves the right to change the
location of the land even after allotment.
•PACL also admitted that there was only symbolic possession of
the plots handed over to the customer, as the fragmentation of
land/ plot into smaller sizes may not be practical or permissible
under the applicable revenue laws.
3/11/2016 12:30 AM
Chronology of Events – PACL Matter Cont…..
Observations Cont..
•The right of maintenance, development and sale of produce are
retained by PACL. The customer gets no right to claim for any
produce out of the plot/ land for first six years of the agreement.
•As per the agreement, opting out facility was only available under
CDPP, subject to deduction of 20% of the consideration paid.
However, the facility of opting out was also provided under IPP and
the amount repaid was almost exact amount of the expected value
without any deduction. This showed that PACL seems to be eager in
seeing a customer opting out and also appears that the repaid
amount also includes some portion of interest also.
•The land allotted are located at places which are far off from the
places where the customers are generally residing.
•Special Power of Attorney was taken from all customers and where
sale deeds would be executed the same would be kept with the
custodial services company of PACL.
•The rights in the land allotted are said to have been assigned by the
customers to the prospective vendees, however, in the absence of
any sale deeds, the fact remains that the customer gets neither the
possession, nor the legal rights in the land to transfer the same to
prospective vendee.
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Chronology of Events – PACL Matter Cont…..
Observations Cont…
•Not a single applicant out of the 500 samples selected had
registered a sale deed of the land.
•As per the admission by PACL, it had executed only 19,284 sale
deeds (0.005%).
•In case of those executed sale deeds there were lots of
discrepancies. The sale deed has not mentioned how the
customers will access/ use such un-partitioned agricultural land.
•Huge pre-paid commission paid to agents.
•The % of direct holding of land by PACL is very negligible.
•PACL had made arrangements to purchase the land through its
250 associate companies, in order to circumvent the applicable
laws of land ceilings.
3/11/2016 12:30 AM
Chronology of Events – PACL Matter Cont…..
Any schemes in order to be called a CIS, has to satisfy the four
conditions mentioned in Section 11AA(2) of the SEBI Act.
•First Condition: PACL collects the money from customers/
investors against the purported sale of a plot/ land. PACL pools in
the money of customers for the purposes of the scheme i.e., for
procuring the land.
•Second Condition: The mere promise of expected value higher
than amount invested makes it clear that contributions are made
with a view of earning profits.
•Third Condition: The customer who invest their money with PACL
are mandatorily required to give the right of development and
maintenance in favour of PACL. The investor gets only an undivided
interest in the stock of land and the same cannot be identified. The
customer does not manage his investments in the scheme rather
his investments are managed and utilized by PACL.
•Fourth Condition: PACL obtains the authority from its customers
for development and maintenance of the plots of land. The
customer does not have any claim over the common facilities
provided by PACL, such as, irrigation pipelines, drainage systems
and electrical lines etc. even after the execution of sale deeds.
3/11/2016 12:30 AM
Chronology of Events – PACL Matter Cont…..
Liability of Directors
•All directors are liable and responsible for the violations committed
by PACL in running CISs without obtaining registration from SEBI as
required under law.
Directions:
•PACL Limited, its promoters and directors including Mr. Tarlochan
Singh, Mr. Sukhdev Singh, Mr. Gurmeet Singh and Mr. Subrata
Bhattacharya,
• Shall abstain from collecting any money from investors or launch or carry out
any Collective Investment Schemes.
• Shall wind up all the existing Collective Investment Schemes of PACL Limited
and refund the monies collected by the said company under its schemes with
returns which are due to its investors as per the terms of offer.
• are also directed to immediately submit the complete and detailed inventory
of the assets owned by PACL Limited.
• shall not alienate or dispose off or sell any of the assets of PACL Limited
except for the purpose of making refunds to its investors as directed above.
•Advise SEBI to initiate appropriate proceedings under the SEBI Act
and applicable Regulations against PACL Limited, its promoters and
directors, including Mr. Tarlochan Singh, Mr. Sukhdev Singh, Mr.
Gurmeet Singh, Mr. Subrata Bhattacharya, Mr. Nirmal Singh
Bhangoo, Mr. Tyger Joginder, Mr. Gurnam Singh, Mr. Anand
Gurwant Singh and Mr. Uppal Devinder Kumar.
3/11/2016 12:30 AM
Portfolio
Management
Services (PMS)
IMD-DoF-1
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43
Overview
• Portfolio Managers in India are required to register
under the SEBI (Portfolio Managers) regulations,
1993
• As on Dec 31 2015, there are 221 Portfolio
Managers registered with SEBI.
• Investors are required to invest at least Rs. 25 lakhs
to avail Portfolio Management Services.
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44
Type of services provided
• Portfolio Managers provide one or more of the
following services:
• Discretionary PMS - where the Portfolio Manager takes
all the decisions on investments of the client.
• Non-discretionary PMS - where investor takes the final
decision based on Portfolio Manager’s advice and
Portfolio Manager executes the same.
• Advisory PMS - where the Portfolio Manager provides
only advice to the clients and the decision of investing as
well as execution lies with the client.
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45
AUM (In Rs Crores,
as on Dec 31, 2015)
No. of Clients
AUM (Rs. in crore)
Listed Equity
Unlisted Equity
Plain Debt
Structured Debt
Equity Derivative
Mutual Fund
Others
Total
Discretionary
Non-Discretionary
53874
3598
47657
972.25
710738
87
180
6226
18632
784496#
10223
41.20
40083
399
-2
5974
259
56798
Advisory
2274
199788*
Notes:
1. *Value of Assets for which Advisory Services are being given.
#
2. Of the above AUM Rs. 4,80,326.89 crore is contributed by funds from EPFO/PFs.
3. The above data is based on the monthly reports received from portfolio managers.
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46
Top 5 Portfolio Managers
handling EPFO/PF funds
S.No.
3/11/2016
Portfolio Manager
1
STATE BANK OF INDIA
2
ICICI SECURITIES PRIMARY DEALERSHIP
LTD.
3
RELIANCE CAPITAL ASSET MANAGEMENT
LTD
4
HSBC ASSET MANAGEMENT (INDIA) PVT.
LTD.
5
IDBI CAPITAL MARKET SERVICES LTD
47
Top 10 Portfolio Managers(as per AUM)
S.No.
Portfolio Manager
1
STATE BANK OF INDIA
2
ICICI SECURITIES PRIMARY DEALERSHIP LTD.
3
RELIANCE CAPITAL ASSET MANAGEMENT LTD
4
HSBC ASSET MANAGEMENT (INDIA) PVT. LTD.
5
UTI ASSET MANAGEMENT COMPANY PVT LTD
6
SBI FUNDS MANAGEMENT PVT LTD
7
CREDIT SUISSE SECURITIES (INDIA) PRIVATE LIMITED
8
HDFC ASSET MANAGEMENT COMPANY LTD
9
QUANTUM ADVISORS PVT.LTD.
10 IIFL WEALTH MANAGEMENT LIMITED
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48
Major policy developments
in recent past
1. Minimum net worth requirement for Portfolio Manager
increased from Rs 50 lacs to Rs 2 crore excluding minimum
Capital Adequacy/ Net worth requirement for any other activity
(2008)
2. Requirement of segregation of listed securities in individual
client accounts. (2008)
3. Performance fees, if charged, shall be mandatorily on the basis
of high-water mark principle. (2010)
4. Portfolio managers to accept first single lump-sum investment
amount, as funds or securities from clients, of atleast Rs 5 lacs.
(2010)
5. Disclosure Document to be placed on the website of Portfolio
Manager to ensure that the clients have updated information.
(2010)
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Major developments
in recent past
6) Portfolio managers to keep the funds of all clients in a separate
bank account maintained by the portfolio manager.
7) Portfolio Managers not to organize investment portfolios as
"Schemes‟ akin to Mutual Fund Schemes while marketing their
services to clients. (2010)
8) Minimum investment per client increased from Rs 5 lacs to Rs 25
lacs. (2012)
9) Segregation of unlisted securities in individual client accounts.
(2012)
10) Portfolio managers are required to submit a monthly report as per
the prescribed format containing details such as no. of investors,
AUM managed, performance etc. to SEBI only. Pursuant to CIC
order dated January 17, 2013 SEBI has started putting these
monthly reports on the SEBI website.
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Major Issues
• Partial withdrawal by the old investors, who had invested Rs. 5 Lakh
• Disclosure Documents (DD) on the website:
• D.D. has to be provided on the website so that the updated information is
available to the client
• Few Portfolio Managers provide access to DD through logging into the portal
• Whether performance of the Portfolio manager be disclosed like the
performance of Mutual Fund.
• Lately there have been some media reports with regards to issues related to
comparison of performance of portfolio managers mainly owing to insufficiency
of the performance related data on portfolio managers, which is available in
public domain. However, this is to be clarified that portfolio management is
a customized service which is provided taking into consideration the need of
customers, their preferences, risk profiling, suitability etc. Moreover, as per PMS
Regulations of SEBI, the portfolio manager shall individually and independently
manage the funds of each client in accordance with the needs of the client in a
manner which does not partake character of a Mutual Fund. Therefore, the
performance of one portfolio manager may not comparable with the
performance of another.
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51
Thank You