Trusts to be allowed to invest in the markets

CHRISTMAS COMES EARLY IN 2007

The government today decided to amend the archaic laws to allow all trusts to invest in securities, including shares and bonds of listed companies.

The move could see thousands of crores of rupees flowing to the booming capital market.

The Union Cabinet, which met today, approved a proposal to amend Section 20(f) of the Indian Trusts Act, 1882, in the next session of Parliament to make it more contemporary.

This will be the first amendment to the Act since independence.

Section 20(f) prescribes investment options and refers to places like Britain, Rangoon and Karachi.

Since independence, only an administrative circular has been issued not to invest in any securities issued on behalf of a municipal body, port trust of city improvement trust in Rangoon Town, or by or on behalf of the trustees of the port of Karachi.

The amendment in the investment norms under Section 20(f) will enable the government to notify a class of securities as eligible for investment by trusts, said an official statement after the Union Cabinet meeting here.

At present, registered trusts can invest their funds either in securities notified by the government or authorised by the trust's charter or under a High Court ruling.

After the amendment to the Act, the government will allow all trusts set up under the Act, which include private and public trusts like religious trusts and educational trusts, to invest in shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities, sources said.

Analysts said the measure could release thousands of crores of surplus funds, currently invested in risk-free government bonds and bank deposits, into the capital market.

While newer trusts have provided maximum flexibility in their terms of investment options through their charters, older ones like cash-rich religious trusts, have been deprived of this opportunity.

There are thousands of trusts in the country, out of which about 400 are very big and have huge resources. Trusts find it difficult to utilise the huge funds received for welfare.

The infrastructure sector is expected to become a major beneficiary as the government may promote investment by such trusts in equity and bonds of infrastructure projects or firms.