After reading this article you will learn about:- 1. Meaning of Investment Trusts 2. Investment Trust and Investment Counsel 3. Development 4. Investment Trusts In India 5. Future in India.


  1. Meaning of Investment Trust
  2. Investment Trust and Investment Counsel
  3. Development of Investment Trusts
  4. Investment Trusts In India
  5. Future of Investment Trusts in India

1. Meaning of Investment Trusts:

An investment trust is a financial institution which collects investible funds of large number of investors and invests them in a diversified portfolio. The individual investors may not have large funds to purchase securities of many companies. In case they purchase the shares of a few companies then there is a danger of loss due to price fluctuations. Investment in diversified securities spreads the elements of risk.


A loss in some script may be offset by the profit in others. The funds from investors are collected by selling the shares of trusts. The selection of securities to be purchased is made by the trustees. They distribute the income among its members by way of dividend.

Trusts do not maintain separate accounts for investing the funds of different investors. They make investments from the consolidated fund created out of the subscriptions of various members of the trust.

2. Investment Trust and Investment Counsel:

An investment counsel is to advise individual or institutional investors about the selection and management of investment policies. The Counsel may also help in selection of securities. He may also assume the full responsibility of managing the investment. In such cases he makes purchase of securities for his clients. He maintains separate accounts of his clients.

In favourable situations the securities may also be sold. The counsel charges commission for his services. The powers of a counsel are restricted as regards investible funds because he is only an advisor. Investment trusts are not advisors but have full powers to employ the funds in any type of security.


Their services are available to a large number of small investors who may not otherwise be in a position to invest their savings effectively on a diversified basis.

3. Development of Investment Trusts:

The first investment trust was formed by the formal royal family of Belgium. Dundel is sometimes referred to as the home of investment trust movement where Scottish American Investment Trust was established in 1873 In England earlier institutions were created under Old English Trust.

The development of trusts in England was steady. Proper management of funds by the trustees made trusts successful in England. Their judicious selection of securities and keeping a check on expenses made trusts successful.

In U.S.A. investment trusts movements started only after World War I. These trusts got a fillip during 1925-1929. The substantial expansion of this movement was due to general development of finance, surplus investible funds and speculative spirit of that period.


Banking houses formed trusts to off load their unsaleable securities or to control other companies without investing much amounts. The stock exchanges organised trusts to earn more commission. Almost all financial groups were interested in some sort of investment trust.

4. Investment Trusts In India:

The investment trust movement in India started in real sense during 1930’s. There were some reasons for the slow development of investment trusts. The field of investment was limited due to slow industrialisation. The failure of a number of joint stock companies had shaken the confidence of small investors. The taxation burden of these trusts was also high.

M/s Premchand Roychand in Bombay established Industrial Investment Trust in 1933. It was followed by number of other trusts such as Investment & Finance Co., Calcutta, General Investment and Trust Co., Calcutta, New Indian Investment Corporation, Calcutta, Tata Investment Trust, Bombay.

A study by the Banking Commission into the working of investment trusts showed that they have insignificant position in Indian capital market. There was a lack of funds from large investors. Most of the investment trusts were controlled by business or industrial groups. So they concentrated their investments into group companies only.


The main object of most of these companies is to control, manage and assist companies within their particular group. These trusts try to take managerial control of the corporations whose securities they purchase. Many investment trusts are organised as private companies.

These companies are run as family concerns only. Investment trusts are used as a tool to control more and more units by owning and controlling shares. They have led to concentration of economic power in fewer hands.

5. Future of Investment Trusts in India:

The investment trusts played a significant role in mobilising funds and investing them productively. Their success all over the world shows their significance. The trusts as they exist in India are merely investment companies started by different industrial houses. If these trusts are to play an important role in capital market then these should work as trustees and not as investment companies.

The trusts should concentrate only on collecting savings and their use for purchasing diversified securities. They should not try to control the management of companies where investments are made. The Articles of Association should place some restrictions on the discretion of directors.


The funds of the trusts should not be used for extending loans to company’s officials. The reports of portfolios should be regularly communicated to members of the trusts. The trusts in India can play an important role in the economy provided their working is regulated properly.