Amfi For Changes In Trusts Act; Move To Release Rs 2000 Cr

The Association of Mutual Funds in India (Amfi) is seeking an amendment in the Indian Trusts Act, 1882, to recognise mutual fund units as a trust-approved security.

The amendment to the Act if adopted, is expected to release approximately Rs 2,000 crore into the capital markets, which will be through the mutual funds route.

According to industry players, considering the present state of the stock markets, the amendment if implemented by the government would be a major shot in the arm.

This is expected to bring in sufficient liquidity.

Section (20) EE of the Indian Trusts Act at present prohibits private trusts from investing in any private sector mutual fund units except in units of any UTI scheme.

 

Mutual fund players argue that while these trusts are permitted to invest in the Unit Trust of Indias equity growth schemes which are risky, they are not allowed to invest even in the income schemes of the private sector mutual funds which are comparatively safer instruments.

Hence, there is also the issue of a level-playing field that comes into the picture, the players added.

Private mutual funds seeking investments from trusts into any of their schemes, at present have to get a specific approval from the charity commissioner for the same.

And this would have to be taken separately for each scheme even from the same mutual fund.

For example, the Tata Core Sector scheme had secured the trustee security approval and now the Tata Asset Management is seeking fresh approval for its forthcoming new income scheme.

The Association of Mutual Funds in India, which had made a presentation to the government concerning such an amendment earlier, is now making a fresh application on the the said matter.

The amendment that we seek would make investing by trusts in mutual funds easier.

This would bring in about Rs 2,000 crore into the system via the mutual funds. The regulator is also in agreement to our request on the issue, K N Atmaramani, managing director, Tata Asset Management, and an active member of the Association of Mutual Funds of India said.

Several private registered temple and welfare trusts who are cash rich and have been keeping their funds in bank accounts are now thinking in terms of getting better returns from these funds than what a bank fixed deposit can provide.

The fixed income schemes of mutual funds are ideally suited to the investment needs of these trusts who have substantial funds lying in bank accounts, Atmaramani said.

The advantage to the mutual funds, according to him, is that the focus of these trusts range essentially from the medium to long-term thus obviating chances of sudden large redemptions from the scheme.