Mutual Funds, Collective Investment Schemes and AIFs
Scope
This domain tests pooled-investment vehicles: mutual funds, collective investment schemes and alternative investment funds. The exam expects you to distinguish the three regimes, identify the parties, and know the core investor-protection rules.
Core rules
- A mutual fund is a trust regulated by SEBI (Mutual Funds) Regulations, 1996. The sponsor sets it up, the trustee oversees, the AMC manages, and the custodian holds assets. Schemes may be open-ended, closed-ended or interval; equity, debt, hybrid, index and ETF. NAV = (assets − liabilities)/units outstanding.
- A collective investment scheme pools money for investment and is regulated by the SEBI (CIS) Regulations, 1999. Unregistered CIS are prohibited; the regulator has powers to wind up unauthorised schemes.
- AIFs are privately pooled funds regulated by the SEBI (AIF) Regulations, 2012. Category I includes venture capital, SME, infrastructure and angel funds; Category II includes private equity and debt funds; Category III includes hedge funds. Minimum investment per investor is ₹1 crore, subject to specified exceptions.
Worked example
A fund has assets of ₹105 crore, liabilities of ₹5 crore and 10 crore units. NAV = (105 − 5)/10 = ₹10 per unit. If an investor buys 1,000 units at ₹10 with a 1% entry load, the amount paid is ₹10,100, and units allotted are 1,000 (assuming no load-adjusted allotment). If a manager instead pools ₹2 crore from 20 investors to buy unlisted startups, that is an AIF, not a mutual fund; it needs AIF registration and must follow private-placement norms.
Traps
Do not call every pooled scheme a mutual fund. Do not apply mutual-fund NAV rules to AIFs. Do not ignore the ₹1 crore AIF minimum. Do not treat a CIS as automatically illegal - registration is the issue. Do not confuse the sponsor with the AMC or trustee.