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CS Executive · Capital Market and Securities Laws · Collective Investment Schemes

Four friends contribute money to a pooled fund run by Mr. Rao, who invests it in plantations and distributes the produce to them. They have no say in daily operations. Which condition in the SEBI Act definition of a collective investment scheme is shown by their lack of day-to-day involvement?

The investors' lack of involvement in daily operations shows the condition that investors do not have day-to-day control over the management and operation of the scheme. This is one of the four conditions in Section 11AA(2) of the SEBI Act, separate from pooling, profit motive and management on behalf of investors.

  1. AInvestors do not have day-to-day control over the management and operation of the schemeCorrect
  2. BContributions are pooled and utilised for the scheme
  3. CContributions are made with a view to receive profits, income, produce or property
  4. DProperty forming part of the scheme is managed on behalf of the investors

Explanation

Section 11AA(2)(iv) requires that investors do not have day-to-day control over the management and operation of the scheme. The friends' lack of involvement in daily operations illustrates exactly this condition. The other options are separate conditions: pooling, expectation of returns, and management on behalf of investors.

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