Personal Finance

Unleash your philanthropic spirit via SIP

Sreekumaran N | Updated on May 20, 2020 Published on May 20, 2020

Make your act of giving as regular as your investments because the country today needs more than what you can give.

As the world battles the virus, life is no more the same for anyone. While the coronavirus has forced many changes in our priorities and preferences, many are developing a new habit or reviving a forgotten old habit — the act of giving.

SIP for philanthropy

Philanthropy assumes much greater significance today than ever before because any financial support, no matter how big or how small, is of immense help to the ecosystem that has been severely hit by Covid-19.

The middle class, the upper middle class and the rich all alike are eager to extend financial support in the best possible way they are capable of. Not many are, however, aware of the effective ways of giving. For example, few know that one can take the SIP route to invest with the objective of philanthropy. Such an approach ensures good utilisation of money for a chosen cause. The best part of investing in a systematic investment plan (SIP) with the objective of philanthropy, as with other investment purposes, is that you don’t need a large sum to start with.

“If a person is unable to donate a sizeable corpus to charity all at once, he/she can start with an SIP for a fixed period of time in a debt/liquid fund and then on maturity donate the amount received on redemption,” says Saurav Basu, Head, Wealth Management, Tata Capital. The best kind of SIP for this purpose would be an SIP for 8-10 months so that tax benefits on the donation can be claimed in the income statements of the same year, he adds.

The act of giving too, needs proper guidance and direction. Identifying a cause one strongly feels for, mode of payment, tax incentives and the possibility of tracking the impact of philanthropy are some of the guiding factors.

As Satyen Kothari, Founder & CEO, Cube Wealth, says, “In a sense, this is very similar to investing — finding a quality mutual fund, setting up an SIP to invest regularly, and tracking the performance of your portfolio.”

A gratifying aspect of going the SIP way for philanthropy is that your act of generosity is not limited to be a one-time affair. The world today perhaps needs more than what one can give, and therefore, giving too can be as regular as your other investments. As long as your income is regular and you have provisioned for emergency requirements, making charity a regular habit can be truly fulfilling.

Abhijit Bhave, CEO, Karvy Private Wealth, says AMCs may introduce mutual fund schemes explicitly designed for charitable activities. “Investing in this form of schemes through SIPs can attract much attention. There are specific schemes in the landscape of the domestic mutual fund which contribute to philanthropic activities ….,” he adds.

‘How much’ for charity is the dilemma

One dilemma that every aspiring donors face is what percentage of income should one set aside for giving without hurting one’s lifestyle or financial security. It is absolutely at the discretion of individual donors. One size doesn’t fit all as many factors that differ from person to person come into play here — one’s stage in life, income, liability and attitude towards charity are a few to name.

Still, wealth managers advise setting aside 1-2 per cent of monthly income. Bhave says, “Around 2 per cent of an individual's monthly earnings can easily be set aside for charitable work, with 1 per cent contributing to a national fund and 1 per cent contributing to local charitable activities.”

Basu says for beginners it is prudent to set aside a sum of approximately 1 per cent of yearly income for charity. “This is a reasonable amount which will not put any additional financial stress on the donor,” Kothari says. If someone has enough money saved for emergencies and has basic savings for the next 2-3 years, he/she can start giving anything between 10-30 per cent investments to high quality charities, he adds.

Socially responsible investments in funds that invest money for social development projects are also emerging as preferred options for those committed to a social cause. Donating to charities that provide tax benefits under Section 80G of the Income Tax Act, investing in companies under Section 8 of the Indian Companies Act, 2013 (those whose objective is not profit but charity, public welfare and other social causes), and donating to national funds such as PM CARES are a few other options Basu listed for investors keen on contributing to charity.

Though newer avenues are emerging for philanthropy with a purpose, a considerable number of salary earners, professionals and small-time businessmen are still sceptical of investing for charity. They fear their hard-earned money may fall into wrong hands.

A well-defined charitable organisation structure and adequate auditing of the nature of their work are much-needed today when more and more are eager to contribute to social welfare. Appropriate audits and observable results would go a long way to attract the well-to-do portion of the community to contribute more to social welfare, says Bhave. “Adjustments can be done at the corporate level, where the salaried portion of the workforce can contribute to CSR operations undertaken by their own companies,” he adds.

The gratification of having impacted somebody else’s life in a positive manner through an act of giving is immeasurable. Let not nagging doubts and procrastination deny you that pleasure.

SIP for charity

The best part of investing in an SIP with the objective of philanthropy is that you don’t need a large sum to start with. An SIP for 8-10 months would be ideal because tax benefits on the donation can be claimed in the tax returns of the same year.

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Published on May 20, 2020
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