The article provides a comprehensive overview of collective investment schemes (CIS) and their regulatory framework in Singapore.
Collective Investment Schemes (CIS), also called Investment Funds are also commonly referred to as Funds or Mutual Funds. These are funds that are pooled together from investors, and reinvested into other assets such as cash, bonds, or equities, with the target of achieving higher returns for the investors. Most of such structured funds are administered under the Monetary Authority of Singapore (MAS). The best practices in the management of CIS are prescribed in the Code on Collective Investment Schemes (the “Code”).
What is a Collective Investment Scheme?
CIS is a financing system in which several individuals put their money together to invest in one grouped asset. Profits from their investment are then distributed on a pre-agreed basis and shared among the investors.
The CIS is basically a deal signed by all participating investors with the following conditions:
– No participant will have routine control over asset management throughout the process.
– To meet either one or both of these standards:
- The chosen asset will be managed on behalf of or completely by the Fund Manager.
- All participants will contribute to the investment together. Profits of which will be pooled.
– The objective of this agreement is to allow the investors to put their funds in the right asset and get better profits from the process.
Exemptions for Offer in Units
In both cases, recognition or authorisation, the CIS agreement and prospectus registration have certain requirements. However, these do not apply to the offer in some cases. These are called Exempt Offers and include the following:
- Small Offers: The total raised amount in these must be S$5 million in less than 1 year.
- Private Placement: These are the offers given to 50 or less people within 12 months.
- Offers aimed at Institutional or Accredited investors only.
Exempted Offers are subjected to certain other terms, for instance non-disclosures and advertising for investors.
More information can be found in Part XIII, Division 2- Subdivision, of the SFA.
Workings of a Collective Investment Scheme
In a CIS, the investors pool their funds together to invest in one single asset. This helps in securing a bigger capital and gain higher profits compared to their revenue as individual investors. The investment in funds is split into units.
In simple terms, the number of units an investor owns is the proportion of the asset ownership s/he has. It also defines one’s capital growth and income from the particular investment. The prices for these may vary based on the rise and fall of the value of the purchased asset.
As the number of units determines the fund value, it will also impact the individual income. Additionally, each fund has a different risk level. While some only require less risk, for instance investing in cash based assets, there are others with higher risk factors, like investing in entrepreneurial ventures, risky stocks or exotic products to get quicker and higher income.
Hence, one is always recommended to receive professional guidance before selecting a fund. This will help you pick a befitting asset that goes perfectly with your risk profile. Make sure you consider the following:
- Financial Condition.
- Fund Knowledge.
- Investment Objectives.
- Risk Appetite.
Restricted Schemes
Besides Exempted Offers, a CIS also has Restricted Schemes, which are only provided to a few people. The eligibility is stated in Section 305(5) SFA. It also states that these “relevant” people must have at least a minimum of S$200,000 per transaction.
In case of registering as a Restricted Scheme, the investors will have to provide a notification to MAS. Upon approval, the fund will be listed within the MAS Restricted Scheme listing before the fund can then be setup and marketed.
For MAS approval in the Restricted Scheme:
- The Offer should be made with or complying by the information memorandum, which provides primary knowledge on the restricted schemes.
- The investors have a licensed Fund Manager that has proper means to manage the scheme asset by the jurisdiction of the place of business.
There are also Restricted Non-Capital Market Products (CMP) Schemes, which are similar to restricted schemes but do not invest on products from the capital market. These are generally provided to relevant persons only and do not require having a manager with a license.
This is why investors do not have to register these with MAS Restricted Scheme listing. However, they will have to provide certain data before making an offer to the MAS by the CISNet website.
