Circular of the Charity Commissioner concerning investment of trust funds

The Charity Commissioner of Maharashtra vide Circular No. 619 dated 21^st July 2025 has granted general permission to public charitable trusts, as defined and registered under Maharashtra Public Trusts Act 1950, to invest up to fifty per cent of trust money in specified securities such as listed shares, units of mutual funds, etc. Unfortunately, this circular, though well intended, is confusing, conflicting and raises several concerns!

Key issues of confusion, conflict and concern

The circular refers to the Indian Trusts Act which is applicable to Private Trusts and not to Public Charitable Trusts. Incidentally, the Charity Commissioner has no jurisdiction over Private Trusts. The Indian Trusts Act is a Central Act whereas the Maharashtra Public Trusts Act 1950 is a State Act.

1. Even assuming that the Charity Commissioner has tried to bring the modes of investment for charitable trusts and societies more in sync with the Central Income tax Act 1961 or the Indian Trusts Act 1882, the circular allows only up to fifty per cent of the Trust Funds to be invested in Securities permitted by the Central Government;
2. What is more alarming is the Charity Commissioner allowing trust funds to be invested in shares of body corporates listed on any recognized stock exchange which has a market capitalization of not less than Rs. 5,000 Crores. This is at variance with Section 11(5) of Income tax Act 1961 which does not allow public charitable trusts and charitable societies enjoying tax exemption to make such investments.
3. If Public Charitable Trusts or societies which are also registered with Income tax under section 12A decide to invest their funds in listed companies as suggested in this circular they will be in violation of section 11(5) of Income tax Act 1961 and would be faced with taxation.

What about trusts already having more than fifty percent funds in approved public securities?

The question also arises what will be the plight of trusts which as on 21^st July 2025 already have more than fifty per cent invested in public securities, including specified mutual funds earlier specified by the office of the Charity Commissioner (Maharashtra)?

In our opinion, NOTHING! There is no need to panic or divest funds which are already invested.

Section 35 of the Maharashtra Public Trusts Act 1950 which covers “Investment of public trust money” 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 (II of 1934), in the Postal Savings Bank or in a Co-operative Bank approved by the State Government for the purpose or to invest it in public securities.”

The Act as passed by the Maharashtra Legislative Assembly states that trust funds can be invested in public securities and the Act places no limit.

Since no limit is specified under Section 35 it is implied that even one hundred per cent of the funds can be invested in Public Securities. 

Can a circular override the Act?

The question is whether a Circular issued by the Charity Commissioner can supersede an Act passed by the legislature. In our opinion the answer would be in the negative.

A circular cannot supersede a law passed by a legislature because a circular is a form of administrative instruction, not a law, and cannot override statutory provisions or bye-laws. While such circulars can clarify the law and ensure its fair enforcement, they cannot take away statutory rights or benefits or impose new conditions.

Under Section 2(12) of the Maharashtra Public Trusts Act 1950 “public securities” means:

1. Securities of the Central Government or any State Governments;
2. Stocks, debentures or shares in Railway or other companies, the interest or dividend on which has been guaranteed by the Central or any State Government;
3. Debentures or other securities for money issued by or on behalf of any local authority in exercise of the powers conferred by an Act of the Central or State Legislature;
4. A security expressly authorized by an order which the State Government makes in this behalf.

What the circular states

“Notably, Section 20 of the Indian Trusts Act, 1882, was amended in 2016 to permit the trustees to invest trust money in any of the securities as notified by Central Government. The notification for the same was issued by Ministry of Finance (Department of Economic Affairs) on 21 April 2017 listing out the specified securities for the purpose of the said section. However, public trusts covered by the Act required prior approval under section 35 of the Act to invest the trust money in the securities specified in the above-mentioned notification also.”

Our contention is section 35 of the Maharashtra Public Trusts Act 1950 permitted (and still permits) public charitable trusts to invest funds in ‘public securities’ and that to without limitation of up to fifty per cent.

The Charity Commissioner’s Circular No. 619 dated 21^st July 2025 has now issued a general order permitting the trustees of public trusts to invest up to fifty per cent of the trust money in the following securities:

1. Government securities;
2. Guaranteed securities: securities, the principal whereof and the interest whereon is fully and unconditionally guaranteed by the Central Government or any State Government;
3. Debt mutual funds: units of debt mutual funds regulated by the SEBI;
4. Listed debt securities: listed (or proposed to be listed on exchange in case of fresh issue) debt securities issued by any ‘body corporate,’ including a bank and a public financial institution as defined in clause (72) of Section 2 of the Companies Act, 2013, which have a minimum residual maturity period of 3 years from the date of investment;
5. Listed Basel III Tier-1 Bonds: Basel III Tier-I bonds issued by a scheduled commercial bank under guidelines issued by the RBI, which are either listed or are proposed to be listed on an exchange;
6. Listed infrastructure debt instruments: 

i. the infrastructure related debt instruments listed or proposed to be listed in case of fresh issue:debt securities issued by a body corporate engaged mainly in the business of development or operation and maintenance of infrastructure, or development, construction or finance of low cost housing;

ii. securities issued by an infrastructure debt fund operating as a NBFC and regulated by the RBI; or

iii. units issued by an infrastructure Debt Fund operating as a Mutual Fund and regulated by the SEBI;

g. Listed shares: shares of body corporates listed on any recognized stock exchange which has a market capitalization of not less than INR 5,000 crore as on the date of investment;

h. Units of mutual funds: units of mutual funds regulated by the SEBI, which have minimum 65% of their investment in shares of body corporates listed on a recognized stock exchange;

i. Exchange traded funds or index funds: exchange traded funds or index funds regulated by the SEBI which replicate the portfolio of the BSE Sensex or the NSE Nifty, or those constructed specifically for disinvestment of shareholding of the Government of India in a body corporate;

Note

• Investment under clauses (d), (e) and (f) mentioned above shall be made only in such securities which have minimum AA rating or equivalent in the applicable rating scale from at least two credit rating agencies registered with the SEBI under the SEBI (Credit Rating Agency) Regulations, 1999;
• In case of investment under sub-clause (ii) of clause (f), the ratings shall relate to the non-banking financial company and for that sub-clause, the ratings shall relate to the investment in eligible securities rated above investment grade of the scheme of the fund.

Advisory

• Public Charitable Trusts and Charitable Societies registered under the Maharashtra Public Trusts Act 1950 and which are also tax exempt and registered under section 12A of the Income tax Act are advised not to blindly invest their funds without considering Income tax implications, especially in terms of investing in “shares of body corporates listed on any recognized stock exchange which has a market capitalization of not less than INR 5,000 crore as on the date of investment.” Investing in “shares of body corporates listed on any recognized stock exchange” is not a mode of specified mode of investment under section 11(5) of the Income tax Act 1961.
• It should also be noted by Public Charitable Trusts and Charitable Societies registered under the Maharashtra Public Trusts Act 1950 and which are also registered under the Foreign Contribution Act 2010 that funds received from any ‘foreign source’ cannot be invested in any ‘speculative investment’ nor in any mutual fund.
• Public Charitable Trusts and Charitable Societies registered under the Maharashtra Public Trusts Act 1950 already having over fifty per cent invested in public securities, including specified mutual funds earlier specified by the office of the Charity Commissioner (Maharashtra) need not panic nor consider divesting funds in excess of fifty per cent which are invested in ‘public securities.’
• Public Charitable Trusts and Charitable Societies registered under the Maharashtra Public Trusts Act 1950 should make investment choices only after considering implications under Income tax and FCRA (if applicable.)