Trusts can take a call on investment

NEW DELHI: The government is proposing to free trusts to make their own investments decision. This will be done by repealing section 20 of the Indian Trusts Act, 1882.
This very old Act prescribes, through section 20, the securities in which the funds of a trust set up under this Act can be invested. Under the provisions of this section, a trust can invest 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. *In bonds, debentures and annuities charged or secured by the Parliament of UK.
*In stock or debentures of or shares in railway or other companies the interest of which is guaranteed
*In debentures or other securities for money issued under the authority of any central or provincial or state Act
*On a first mortgage of immovable property
*On any other security expressly authorised by the instrument of trust.
According to sources, though this Act is old enough to still have references to Great Britain and Ireland, the government had till now been using the enabling provision contained in sub-section (f) to notify new generation securities.
This sub-section permits the central government to notify investment instruments from time-to-time. It also grants recognition to “any rule which the high court may prescribe from time-to-time on this behalf�.
Government sources said while it was acceptable for the government to dictate investment decisions of trusts prior to liberalisation, it does not gel with opening up when commercial decision making rules the roost.
These sources said that when all other financial sector intermediaries are being permitted to make their investment decisions, the trusts too should be permitted to do so.
Originally, this section was framed with charitable trusts — which also enjoy income tax benefits under section 11 of the Income Tax Act — in mind, though today, any trust can be set up by anyone for a pre-stated purpose.
As a matter of fact, the Templeton Mutual Fund — like most other mutual funds — has been set up with Templeton Trust Services as the trustee under the Indian Trust Act. Similarly, most Indian corporate groups run trusts and charitable organisations set up under the Indian Trust Act. However, this Act excludes UTI, Port Trust and other trusts set up under special acts of Parliament.
Officials said that the investment norms specified in section 20 of the Act apply to all trusts set up under it. However, in case of charities and charitable organisations set up under the provisions of this Act, the investment norms apply to uninvested funds lying with them.
Such surpluses occur when the charity has raised funds through donations for a pre-determined purpose, but has not yet been able to make the investment on account of delays in project implementation such as non-availability of land (say to build a school or a college etc).