Sections 20A and 21 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 20A lets a trustee invest in the securities mentioned or referred to in section 20 even if they are redeemable and the price is above the redemption value, and lets him keep them until redemption. Section 21 then sets out three things that section 20 does not stop. Both sections depend on section 20, which was substituted in 2016, so the current wording of 20A and 21 should be checked in the official text before anyone relies on this article. For a trust that will hold investments, take a legal consultation on the current rules.
Section 20A (as printed in our source): a trustee may invest in the securities mentioned or referred to in section 20 even if redeemable and the price exceeds the redemption value, and may retain them until redemption. Section 21: section 20 does not apply to investments made before the Act came into force, does not stop an investment on a mortgage of land already pledged to the Government for a land improvement loan, and does not stop a deposit in a Government Savings Bank where the trust money does not exceed three thousand rupees (as printed in the source).
Scope of the Act
The Act deals with private trusts. Public, charitable and religious trusts are governed by other laws; see private trust vs public trust. Section 20 itself already has a live article: investment rules for trusts under section 20. We do not repeat it here.
Section 20A: what the text prints
The source prints section 20A as inserted by Act 1 of 1916 (footnote 12). It has two sub-sections.
- Sub-section (1): "A trustee may invest in any of the securities mentioned or referred to in Section 20, notwithstanding that the same may be redeemable and that the price exceeds the redemption value". The OCR copy leaves a colon after "redemption value", and footnote 13 says a proviso that used to follow was omitted by Act 34 of 2016 with effect from 17-4-2017. The old proviso printed in that footnote is the omitted wording; it must not be read as current law.
- Sub-section (2): "A trustee may retain until redemption any redeemable stock, fund or security which may have been purchased in accordance with this section."
| Feature | Meaning in plain words |
|---|---|
| Securities "mentioned or referred to in Section 20" | The list of permitted investments comes from section 20 |
| "notwithstanding that the same may be redeemable" | A redeemable security is not excluded just because it will be paid off |
| "price exceeds the redemption value" | Buying at a premium is allowed |
| Retain "until redemption" | The trustee need not sell early merely because the price is above the redemption value |
Why the amendment matters. Section 20 was substituted by Act 34 of 2016 (footnote 9). The printed section 20 now refers to investments authorised by the instrument of trust or in securities specified by the Central Government by notification. Section 20A cross-refers to "the securities mentioned or referred to in Section 20", so its practical reach depends on what section 20 currently says. We do not state the current content of either; check the official text and current notifications.
Section 21: what it keeps outside section 20
Section 21 is headed "Mortgage of land pledged to Government under Act 26 of 1871. Deposit in Government Savings Bank." Its text: "Nothing in Section 20 shall apply to investments made before this Act comes into force, or shall be deemed to preclude an investment on a mortgage of immovable property already pledged as security for an advance under the Land Improvement Act, 1871 or, in case the trust-money does not exceed three thousand rupees, a deposit thereof in a Government Savings Bank."
| Exception | Detail |
|---|---|
| Older investments | Section 20 does not apply to investments made before the Act came into force |
| Land improvement mortgage | Investment on a mortgage of immovable property already pledged for an advance under the Land Improvement Act, 1871; the footnote says "see now the Land Improvement Loans Act, 1883 (19 of 1883)" |
| Small trust money | A deposit in a Government Savings Bank where the trust money does not exceed three thousand rupees |
The three thousand rupees limit is the figure as printed in the source; we do not know whether it has been changed and do not claim it is current. Section 21 was written against the old section 20, which listed fixed categories of security; after the 2016 substitution the interaction should be checked in the official text.
The Act's illustrations
Neither section 20A nor section 21 prints illustrations in our source.
A modern example of our own
Latha Pillai, a settlor, creates a trust with Rs 10 lakh to support her grandson Dev's studies, and the deed lets the trustee, Mohan, invest in notified securities. Mohan buys a government security that is redeemable in six years at par but costs slightly above par now. Section 20A(1), as printed, means the premium price does not by itself make the investment improper, if the security is one referred to in section 20. Under section 20A(2) he may hold it until redemption. If a trust held only a small sum, say Rs 2,500, section 21 as printed would let the trustee place it in a Government Savings Bank without breaching section 20; for Rs 10 lakh it would not apply. Whether any such account type is available today is outside the Act's text.
What the instrument of trust can change
Section 20 operates "subject to any direction contained in the instrument of trust", and the printed section 20 lets the instrument itself authorise investments. Sections 20A and 21 carry no separate wording about the deed. A deed drafted with its own list of permitted investments is the cleanest answer for a modern family trust.
Practical points
- Settlors: list the investments you want the trustee to be able to make, and state whether early sale is expected.
- Trustees: do not rely on the three thousand rupee figure or on the 2016-era text without checking the official version.
- Beneficiaries: ask the trustee how each investment fits the deed and the Act.
- Advisers: for tax treatment of trust investments, see our income-tax guides.
Need help with trust investment clauses?
If you are drafting an investment clause or are a trustee unsure how section 20, 20A or 21 reads today, a legal consultation can help. Bring the deed and a list of current investments.
Key takeaways
- Section 20A(1) lets a trustee buy section 20 securities even if redeemable and priced above redemption value (as printed).
- Section 20A(2) lets him keep them until redemption.
- Section 21 keeps three things outside section 20: older investments, a Land Improvement mortgage, and a Government Savings Bank deposit where trust money does not exceed three thousand rupees (as printed).
- Section 20 was substituted in 2016; check the current wording of 20A and 21.
Read next
- Section 19: trustee's accounts and information
- Section 22: sale by a trustee directed to sell within a specified time
- Powers of trustees: sale, lease, investment
Disclaimer: Based on the text of the Indian Trusts Act, 1882 as consulted on 1 October 2026 from a scanned copy; the Act applies to private trusts, and public, charitable and religious trusts are governed by other laws. This article is general information, not legal advice; check the official text and take advice before acting.