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Trusts to be allowed to invest in securities

Government has decided to amend laws that restrict trusts from investing in securities.

The government has announced that the laws restricting trusts from investing in securities would be amended, and henceforth, trusts would be allowed to invest in securities, including the shares (and bonds) of listed companies.

The government would amend the Section 20(F) of the Indian Trusts Act, 1882 to this effect. It is interesting to note that this act has not been amended since independence.

 

What does this mean for you?

There are innumerable trusts in India – both private and public – like religious trusts, educational trusts, charitable trusts, employee welfare trusts and port trusts. Thousands of entities, like hospitals, colleges and research institutions are governed by trusts.

As per some estimates, the money managed by these trusts is more than Rs. 1.5 Lakh Crores. This money is largely invested in safe, virtually risk-free avenues like government securities and bank fixed deposits (FDs). When the trusts would be allowed to invest in securities, it would potentially release thousands of crores of rupees to the stock markets, and has the potential to give a very big boost to the stock market.

But would this money be actually invested in the stock market? There were big expectations even when pension funds and provident funds were allowed to invest in equities, but nothing much materialized.

The scenario with trusts might prove to be different, because there are many private trusts in the country with a higher risk appetite. These trusts should be the first ones to put their money in the stock market.

It should be noted that most of the investeds in stock market by trusts would be made through the Mutual Fund (MF) route.

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