The government on Monday allowed all trusts to invest in shares of listed companies, paving the way for investment of several thousands crore of rupees in domestic bourses. There are thousands of trusts in India that include religious and charitable trusts as well as statutory trusts formed by the government and quasi-government bodies managing a large amount of money.
A mutual fund industry source said that private, public and religious trusts in India currently manage over Rs 1,00,000 crore. The largest trusts in India are the port trusts, which have been constituted under the Major Port Trust Act. These include the Bombay Port Trust, Madras Port Trust, Calcutta Port Trust among others.
Industry analysts said the few major port trusts alone could be managing funds over Rs 20,000 crore with a large investible surplus. The Cabinet on Monday approved the proposal to amend the Indian Trusts Act, 1982, giving its approval for an amendment to Clause (F) of Section 20 of the Indian Trusts Act, 1882. The amendment would be moved in Parliament.
Once the amendment is incorporated, trusts could take about 3 months to begin channelising their investment into the stock markets. They coul invest around Rs 10,000 crore in a year, say experts.
"This would enable the government to notify a class of securities as eligible for investment by trusts," an official statement said. Analysts, however, noted that allowing private and public trusts to invest in stock markets could come with a caveat of lower tax exemptions to these entities. A mutual fund industry source said that hundreds of entities ranging from educational institutions to hospitals and research institutes are governed by specially created trusts.
Analysts said most leading corporate houses also have trusts offering a range of services from employee welfare to health and educational services. The biggest gainers would be mutual funds.
The government's move to allow all trusts to invest in securities, including shares, is expected to have a positive impact on the markets.
“This is a move that must be applauded,” said Shailesh Haribhakti, managing partner and CEO, Haribhakti Group. Haribakti estimates that money with private funds could be in the range of Rs 1,50,000-2,00,000 crore.
A Balasubramanian, CIO of Birla Sunlife Mutual Funds, said: “Trusts may easily have investible funds of Rs 15,000-20,000 crore. How much of investible surplus they would invest in the stock markets remains to be seen.”