Of saving tax and giving back to society

Do you know you can invest in funds to donate money for a good cause?
Tinesh Bhasin discusses some options.
Illustration: Uttam Ghosh/Rediff.com

Innovations in financial products and technology have not only made donating for a cause easier, but also ensures that your funds are utilised diligently.

While these new products and platforms offer a wide array of options to suit your way of giving, they can at times be inflexible and in some cases require some due diligence.

HDFC Mutual Fund, for example, has launched a cancer cure scheme.

A three-year close-ended fund, it lets you donate the gains to the Indian Cancer Society, a non-governmental organisation supported by some of the biggest corporates in the country including the Tatas and the Godrejs.

At the end of the tenure, the investor gets the principal back.

An investor can choose either a debt or an arbitrage plan.

The scheme proposes to give half-yearly dividends which will be donated to the ICS, according to the option chosen by the investor.

"It ensures that the NGO has a sustainable flow of funds during this tenure to disburse money to the needy cancer patients," says Milind Barve, managing director of the fund house.

Being an equity-oriented scheme, the arbitrage fund is more tax efficient.

There's no tax on dividend or capital gains.

The debt fund, which would be a preferred mode of investment for corporates, attracts tax on dividend as well on the gains.

The minimum investment in the fund is Rs 50,000.

When the person signs up, s/he can choose to donate either 50 per cent or 100 per cent of the dividend.

The NGO automatically sends the receipt and other documents for tax deduction to the investor's registered address.

The fund house bears all scheme-related expenses, except mandatory charges.

The average annual returns of arbitrage funds are around 6.63 per cent.

This means on an investment of Rs 1 lakh, the investor donates Rs 6,630 a year or Rs 553 a month.

To make a significant contribution, an investor would need to invest much higher amounts.

If you want to donate for cancer treatment but don't want to lock in a large portion of money, you can also directly donate to ICS and still get the tax benefit.

If your priority area for charity is another field, you can log on to crowdfunding Web sites that give you many options -- animal welfare, environment, disability, education and so on.

Impact Guru, a start-up incubated at THE Harvard Innovation Lab, lets donors give directly to the beneficiaries (say, a patient in need of money) or to NGOs through its platform.

The company vets the track record of NGOs before letting them raise funds on its platform.

The donor's money first goes to the Impact Guru Foundation and then is transferred to the respective NGO.

This lets donors get the tax benefit. But if you are funding the beneficiary directly, you won't get the tax deduction.

An NGO or an individual raising funds initially needs to get a few donors to give money through the platform. The visitors donate the remaining amount.

"Most people are comfortable giving to a campaign that already has some donors. If a campaign starts from scratch, few would have the confidence to donate," says Piyush Jain, co-founder and CEO, Impact Guru. The platform charges 10 per cent of the money raised as fees.

Investment advisors suggest it would make sense to opt for projects that are closer to your location.

"We advise people to first visit the NGO, do the due diligence, understand what they do and how they do it, and only then give money," says Suresh Sadagopan, founder, Ladder 7 Financial Advisories.

If you are unsure about donating money directly, you can also buy products for an NGO.

Amazon India has started the Gift a Smile initiative that lets an individual see the list of products an NGO has shortlisted on Amazon.

You can choose to gift books or school bags to children or food and toiletries to the elderly. The only drawback is you must buy from the listed products.

If there's a cheaper alternative that's equally good, you don't have the option to buy it. Also, you won't get a tax deduction on buying products.