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Our Bureau

New Delhi, Oct. 9 Trusts may soon be allowed to park their funds in listed shares or private sector debt instruments that have investment grade rating from credit rating agencies.

The Union Cabinet has given its nod for the introduction of a Bill in the coming session of Parliament to enable funds owned by trusts to be invested in securities (or class of securities) to be specified by the Central Government.

The Bill will seek to amend the Indian Trusts Act 1882. In fact, the Government was looking to introduce a Bill for this purpose in the Budget session this year.

The Cabinet decision covers those trusts whose trust-deeds do not expressly specify the pattern of investments that should be adopted till the funds are used for the ultimate purpose for which these vehicles were created.

For such trusts, once the law is amended, the Centre is likely to specify that the investment pattern spelt out for non-government provident funds/superannuation funds/gratuity funds could be adopted.

In August this year, non-government provident funds as well as superannuation and gratuity funds were given greater exposure to the stock markets. From April 1, 2009, they can directly invest up to 15 per cent of their investible funds in shares of companies on which derivatives are available in the Bombay Stock Exchange (BSE) or National Stock Exchange (NSE).

Moreover, Central Government securities, state government securities and units of gilt mutual funds were clubbed into a single category and investment up to 55 per cent of the investible funds were allowed.

Briefing reporters on the Cabinet decision here on Wednesday, the Union Finance Minister, Mr Chidambaram, said that the Bill would seek to amend Section 20 of the Indian Trusts Act 1882. This section relates to investment of trust money. “Section 20 of the Indian Trusts Act is a relic of the British Raj. It is no longer relevant today”, Mr Chidambaram said.

The Law Commission had in its 17th report recommended that it was better not to enumerate particular securities but to give a general definition of all categories of securities in vogue in the market and that the securities which have become obsolete may be deleted.

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