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.