Investment Opportunities for Charitable Organizations!

Interest rates are falling fast and furious and NGOs are often in a dilemma where to invest charity funds and what is allowed and what is disallowed under law.

Investment of funds is regulated by the state law (Maharashtra Public Trusts Act 1950) under Section 35 and under central law (Income tax Act 1961) under Section 11(5). Both laws prohibit investments in stocks and shares. However, Income tax Act allows investing in shares of public sector companies.

Income tax allows investment in mutual funds however the trusts act allows investment only in select debt based mutual funds selectively approved by state government. Ministry of Home Affairs disallows under FCRA 2010 investment of foreign funds in any Mutual Funds, calling them ‘speculative investments’. 

Thus investment opportunities are largely restricted to Bank Fixed Deposit schemes, HDFC Trust Deposit Scheme, Government of India Bonds and a few select mutual funds.

One is also allowed to invest in immovable property.

Here below are excerpts of the 2 relevant provisions of the state and central law on investment of funds:

Section 35 of the Bombay Public Trusts Act 1950 states:

“Where the trust property consists of money and cannot be applied immediately or at any early date to the purposes of the public trust, the trustee shall be bound (notwithstanding any direction contained in the instrument of the trust) to deposit the money in any Scheduled Bank as defined in the Reserve Bank of India Act, 1934, in the Postal Savings Bank or in a Co­operative Bank 30 approved by the State Government for the purpose or to invest in it public securities: Provided that such money may be invested in the first mortgage of immovable property situate in any part of India if the property is not leasehold for a term of 99 years and the value of the property exceeds by one­ half the mortgage money: Provided further that the Charity Commissioner may be general or special order permit the trustee of any public trust or classes of such trusts to invest the money in any other manner.”

Section 11(5) of the Income Tax Act states:

The forms and modes of investing or depositing shall be the following, namely:

       i. Investment in savings certificates of the Government Savings Certificates Act, 1959  and any other securities or certificates issued by the Central Government under the Small Savings Schemes of that Government;

      ii. Deposit in any account with the Post Office Savings Bank;

    iii. Deposit in any account with a scheduled bank or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank);

    iv. Investment in units of the Unit Trust of India established under the Unit Trust of India Act, 1963;

      v.  Investment in any security for money created and issued by the Central Government or a State Government;

    vi.  Investment in debentures issued by, or on behalf of, any company or corporation both the principal whereof and the interest whereon are fully and unconditionally guaranteed by the Central Government or by a State Government;

   vii. Investment or deposit in any public sector company;

 viii. Deposits with or investment in any bonds issued by a financial corporation which is engaged in providing long-term finance for industrial development in India;

    ix. Deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes;

      x. Deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for urban infrastructure in India.

    xi. Investment in immovable property.

As of the moment, the choice is narrow and limited. One may consider any one or more of the following options:

1) Fixed Deposit with a good Scheduled Bank.

2) HDFC Trust Deposit Scheme

3) Government of India 8% Bonds (lock-in period 6 years)

4) Approved Mutual Funds like Birla Sun Life (approved by CC & IT)

However, to reiterate, if your organization is registered under FCRA 2010, foreign funds should not be invested in Mutual Funds, because MHA views MFs as "speculative investment".

Here is also a list of Mutual Fund Schemes approved for investment approved by the Charity Commissioner Maharashtra state.  

Birla Sun Life 95 Fund Birla Sun Life Advantage Fund Birla Sun Life Buy India Fund Birla Sun Life Cash Manager Birla Sun Life Cash Plus Birla Sun Life Equity Fund Birla Sun Life Gilt Plus - Liquid Plan Birla Sun Life Gilt Plus - PF Plan Birla Sun Life Government Securities Fund - Long Term Plan Birla Sun Life Government Securities Fund - Short Term Plan Birla Sun Life Income Plus Birla Sun Life MNC Fund Birla Sun Life Monthly Income Plan Birla Sun Life New Millennium Fund Birla Sun Life Tax Relief 96 DSP BlackRock Bond  Fund HDFC Income Fund ICICI Prudential Balanced Fund - Regular Plan ICICI Prudential FMCG Fund - Regular Plan ICICI Prudential Gilt Fund - Investment Plan - PF Option - Regular Plan ICICI Prudential Gilt Fund - Treasury Plan - PF Option - Regular Plan ICICI Prudential Income Plan - Regular Plan ICICI Prudential Liquid Plan - Regular Plan ICICI Prudential Monthly Income Plan - Regular Plan ICICI Prudential Tax Plan - Regular Plan ICICI Prudential Technology Fund - Regular Plan IDFC Super Saver Income Fund - Investment Plan - Regular Plan IDFC Super Saver Income Fund - Medium Term Plan - Regular Plan Kotak Bond - Plan A Kotak Gilt Investment - Regular Plan Kotak Liquid - Plan A Reliance Income Fund Reliance Vision Fund SBI Magnum Balanced Fund SBI Magnum Equity Fund SBI Magnum InstaCash Fund SBI Magnum Multiplier Fund SBI Magnum Taxgain Scheme Tata Ethical Fund - Regular Plan Tata Income Fund - Regular Plan UTI Balanced Fund UTI Bond Fund UTI CRTS 81 Fund UTI Equity Fund UTI Equity Tax Savings Fund UTI Mastershare Fund UTI MIS Advantage Fund UTI MNC Fund UTI Money Market Mutual Fund - Institutional Plan UTI Nifty Index Fund UTI Pharma & Healthcare Fund UTI Treasury Advantage Fund - Institutional Plan Franklin India Dynamic Accrual Fund Franklin India Government Securities Fund - Composite Plan - Direct Plan # Franklin India Government Securities Fund - Long Term Plan - Direct Plan # Franklin India Government Securities Fund - PF Plan - Direct Plan # Franklin India Index Fund - NSE Nifty Plan Franklin India Low Duration Fund Franklin India Monthly Income Plan Templeton India Growth Fund

 

  

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