Personal Finance

Giving away, systematically

Meera siva | Updated on January 15, 2018


Mutual funds are coming out with schemes to institutionalise charity

Many of us invest in mutual funds through Systematic Investment Plans, wherein regular units are bought automatically by debiting the bank account. Building on this idea, HDFC Mutual Fund offers a scheme to make periodic donations. The contributions in this case go on an auto-pilot mode from the dividends of the scheme, making it hassle-free for the donor.

How it works

HDFC Debt Fund for Cancer Cure was launched in 2011 as a three-year close ended capital protected income scheme with an initial corpus of ₹77 crore . Another fund was launched in March 2014 with a corpus of ₹175 crore, which will soon complete its three-year tenure. It has given an annualised return of 8.9 per cent till December 30, 2016.

The fund will be passively managed with few restrictions on portfolio construction. For example, the fund cannot buy securities that have maturity beyond the scheme completion date. Securities are typically held till maturity — doing away with interest rate risk on the portfolio. This strategy is typically helpful in a falling interest rate scenario, whereby interest rates can be locked-in for the tenure.

The new fund offering (open till March 24) - HDFC Charity Fund for Cancer Cure - has two separate portfolio options — the arbitrage plan (equity-oriented) and the debt plan (income). Under the arbitrage plan, the scheme will generate income through arbitrage opportunities between cash and equity derivative market. In the debt plan, the scheme will invest predominantly in debt instruments and government securities.

Investors in this fund have an option to donate either 50 per cent or 100 per cent of the dividend proceeds to the Indian Cancer Society or other eligible institutions. The donations are eligible for deduction u/s 80G of Income-Tax Act, 1961. The fund also qualifies for Corporate Social Responsibility (CSR) under ‘Preventive Healthcare’ (Schedule VII of the Companies Act 2013). The money will be used by the Indian Cancer Society for the treatment of the needy and under-privileged cancer patients.

How it differs

Investors do not pay any investment and management fee for the fund and it is borne by HDFC Asset Management Company. Half or the entire dividend income from the scheme can be donated half-yearly by the fund on behalf of the investor. While no dividend distribution tax(DDT) would be levied on the dividends declared for its arbitrage plan, under the debt plan, DDT at the rate of 28.8 per cent would be levied.

The first fund, launched in 2011, made total donations of about ₹13 crore, while the second fund has contributed ₹22 crore until September 2016. Moreover, in the second scheme, HDFC AMC gives a matching contribution, thereby doubling what you donate.

So far, donations have been made to nearly 3,100 cancer patients from 28 States. Data shows that two-thirds of the patients were below 30 years of age.

Patient data is sourced from the 16 empanelled hospitals with the annual income of the beneficiaries being typically less than ₹2 lakh.Donors are given regular updates by the Society on the use of funds.

Published on March 19, 2017

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