Cooperative Housing Societies can now invest in mutual funds and shares.
Amendment in Indian Trust Act 1882 allows CHS to park funds in such instruments with conditions. More than one lakh cooperative housing societies (CHS) in the state will now be able to invest in mutual funds and shares after the central government's recent notification for amending section 20 of Indian Trust Act 1882. The cooperative housing societies are governed by the Maharashtra State Cooperative Societies Act 1960. The Act clearly says that a cooperative housing society can invest its funds in cooperative bank or securities described under the Trust Act. The Trust Act now allows charitable trusts to be invested in government bonds, units of debt mutual funds regulated by Securities and Exchange Board of India (SEBI), debts issued by corporates, including banks and financial institutions, infrastructure-related debt instruments, Basel IIII Tier-I bonds issued by scheduled commercial banks under RBI guidelines, which are either listed or to be listed in case of fresh issue, debt securities issued by a corporate which is engaged in business of development and maintenance of infrastructure or construction or finance of lowcost housing. The amendment also allows the cooperative housing societies to invest in shares listed either on Bombay Stock Exchange or National Stock Exchange of such companies whose market capitalisation is not less than Rs 5, 000 crore. However, the notification has put the restriction that investment can be made only in such securities which have minimum AA or equivalent rating from the credit rating agencies registered with SEBI. This ends monopoly of politically controlled cooperative banks on the funds of CHS which now can be invested in securities which can bring higher returns. Bombay High Court lawyer and expert on cooperative law Vijay Trivedi said, "The amendment to Trust Act allows cooperative housing societies to invest in mutual funds and shares. However, the condition for investment in these instruments, which are generally more profitable, is that there should be unanimity in the CHS over such issue. If something goes wrong in investments in these securities, then the office-bearers will be held responsible, so they will avoid investing in such instruments without consensus," he added. Besides, very few cooperative housing societies have funds to invest in such kinds of instruments as a large number of CHS struggle to collect the regular maintenance amount from its members, Trivedi observed.