The Hindu Business Line : Private trusts may be allowed to invest in listed stocks

Trust in investments
Indications are that the Indian Trusts Act will be amended in the ensuing Budget session to enable the Government to notify a ‘class of securities’ as eligible for investment by private trusts.

K. R. Srivats

New Delhi, June 30

Private trusts may soon be permitted to park their funds in listed shares and specified debt securities, official sources indicate.

This follows the Government’s decision to amend the Indian Trusts Act 1882 which could be taken up in the upcoming Budget session of Parliament.

Also on the cards is a proposal to mandate the appointment of professional investment advisers for superannuation funds with large corpus.

Trusts often encounter a time lag between mobilisation of monies and its eventual deployment towards purposes for which they were set up. The proposed amendments will pave the way for adoption of the new investment pattern for non-government provident, gratuity and superannuation funds, as spelt out by the Finance Ministry in August 2008.

The amendments will benefit Trusts whose deeds do not expressly specify the pattern of investments to be adopted till the funds are used for the 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 2008, these entities (non-government provident as well as superannuation and gratuity funds) were allowed greater exposure to the stock market.

Higher exposure

From April 1, they could directly invest up to 15 per cent of their investible funds in shares or companies on which derivatives are available in the Bombay Stock Exchange or National Stock Exchange.

These amendments to the Indian Trust Act, 1882 — to clean up the provisions relating to investments (Section 20) — have been on the cards for long, according to informed sources.

The suggestions for amending the Indian Trust Act, especially in regard to provisions on investments and references to English joint stock companies, were made by the Law Commission. However, nothing has happened. The UPA Government, in its earlier term, sought to implement the Law Commission’s suggestions.

In December 2007, the Union Cabinet approved the amendment. In October 2008, it again considered this issue and approved amendments. But these could not be passed by Parliament.

Indications are that the Act will be amended in the ensuing Budget session to enable the Government to notify a ‘class of securities’ as eligible for investment by private trusts.

The Ministry may also soon implement a proposal that mandates non-government superannuation trusts of certain corpus size, say, Rs 50 crore or more, to have a professional advisor (most likely to be an asset management company).

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