Trusts can invest in shares, bonds

Money matters

New Delhi, Dec. 24: The government today allowed all trusts to invest in shares and bonds of listed companies.

The archaic Indian Trusts Act, 1882 will be amended for this purpose.

An amendment to Section 20 of the Act will be moved in the ensuing session of Parliament, which will enable the government to notify a class of securities as eligible for investment by trusts, a statement issued by the government, after a meeting of the Union cabinet, said.

Officials said after the amendment to the Act, all trusts set up under the Act, which include private and public trusts such as educational trusts, would be allowed to invest in shares, bonds, debentures or other marketable securities.

Arvind Mahajan, executive director of KPMG, said it was a good decision by the government. However, there should be some limit prescribed on the quantum of investments they could make.

Analysts said funds worth crores are with trusts across the country. Markets stand to gain if these funds are invested.

Mahajan said the government’s move was good as the trusts so far did not have much option, as interest earned by them on mutual funds were being washed away by inflation. This amendment would give them new avenues for wealth creation. However, the funds should be used with caution as the skills required for the capital market were different.

Earlier, the government used to allow trusts to invest in securities on a case-by- case basis. This practice would now be done away with.

According to the Indian Trusts Act, the trusts are already allowed to invest in units issued by the Unit Trust of India under any unit scheme.

The amendment to section 20 of the Act would make the law relevant to current situations and do away with colonial era provisions.

A provision states that the “The trustee is bound to invest the money on the following securities, and on no other: (a) In promissory notes, debentures, stock or other securities of any state government or of the central government or of the United Kingdom of Great Britain and Ireland”.

The Act also talks of investments “in stocks or debentures, or shares in Railway or other companies in which the interest shall be guaranteed by the secretary of state for India in council or by the central government… or they can invest in debentures of the Bombay Provincial Co-operative Bank Limited, the interest whereon shall be guaranteed by the secretary of state for India in council or the state government of Bombay”.