The board of the SEBI which met here today approved the final draft regulations for collective investment schemes (CIS) -- based on the Dave committee recommendations -- and made it mandatory for the CIS of plantation companies to register themselves under the provisions of the Companies Act, 1956 and also seek registration with the SEBI as collective investment management company (CIMC).

The new regulations have come at a time when plantation companies have virtually stopped taking funds from investors. ``The SEBI move is like bolting the stable doors after the horses have fled. Such companies raised funds from gullible investors almost two years ago. Now they are not paying back money to investors. These guidelines should have come three or four years ago,'' said an investor,adding that investors have lost faith in such companies.

SEBI chairman D R Mehta said that CIS should be constituted as a two-tiered structure comprising of a trust and a CMIC. At the time of SEBI registration, each CIMC must have a minimum networth of Rs 3 crore which would be increased to Rs 5 crore over a period of three years.

While mandatory ratings are required for each collective investment scheme by a recognised credit rating agency, the CIS is prohibited from guaranteeing assured returns. Indicative returns could be mentioned based on the projections in the appraisal report. It may be mentioned that the SEBI was empowered by the Union government on November 18, 1997, to deal with the growing numbers of plantation companies floating various collective investment schemes.

The decision was taken in light of the fact that several thousands crores of money were collected under the schemes and later many CIS firms were vanished depriving the investors from their legitimate returns oninvestment.

According to Mehta, about 654 plantation firms responded to SEBI inquiries and submitted reports related to their activities including collection of about Rs 2,589 crore through such schemes. Around 60 companies went for seeking rating from agencies but could not be qualified for investment level. Later, SEBI constituted a committee under the chairmanship of Dr S A Dave to examine and formulate the regulations for these companies floating CIS to collect public deposits. The committee submitted its final report to SEBI on april five and the board today approved the suggestions for immediate implementation.

For the existing CIS schemes, Mehta said that these companies would be allowed to register themselves with SEBI as well as under the Companies Act and they should start their business with a minimum capital of Rs 1 crore for the first year which would have to be raised to Rs 5 crore over a period of next five years. The existing companies will gradually have to comply with all regulations assuggested by the Dave committee which included compulsory filing of offer documents containing adequate disclosures, mandatory rating requirement, listing of schemes on recognised stock exchanges and accounting and valuation norms as stipulated by the CIS guidelines.

They would need to seek SEBI registration within a period of two months from the date of notification. SEBI insisted that the duration of the CIS schemes should be for a minimum period of three years while no scheme should be kept open for subscription for a period of more than 90 days. The schemes should be close ended in nature. The initial issue expenses for schemes of duration of upto 8 years shall not exceed seven per cent of the corpus mobilised and for schemes of duration exceeding 8 years should not exceed 9 per cent of the corpus mobilised.

The compulsory insurance cover for the assets of the scheme and personal indemnity cover for the CIMC should be obtained. The management fees payable to CIMC should consist of basic fee andincentive fee. The basic fee should not exceed one per cent each year of the funds raised under the scheme for the first five years of the operation of the scheme and 1.25 per cent for the next five years. The incentive fee should not exceed 25 per cent of the excess return realised over and above the indicative return at the time of termination of the scheme.