When it comes to a discussion on investing in mutual funds (MFs), it is natural that we think about ourselves and our family. What if you are given a choice to think of others who deserve to enjoy their life in this world as much as you do? Can asset management companies (AMCs) help us with this?
Sample this: At least Rs16,000 crore have been raised through the World Food Programme (WFP) 2010, a part of the United Nations system, that fights hunger worldwide. This money has come from many countries—governments, private institutions, trusts and individual donors like you and me. The Indian government and its agencies have contributed close to Rs2,750 crore and we are currently ranked 30 in the overall donor standings. If I were to relate both these numbers to the Indian MF industry, it may seem like this—15 AMCs adding up their total asset size will still not match the total funds raised by WFP 2010; the Indian contribution alone will beat 16 AMCs in the league table of average assets under management.
What prompted me to write this column is essentially three things. One, this is a season of giving (and marathons)—riding on many resolutions that one has taken for the new year. Two, the recent addition to the big list of givingRs8,846 crore for charitable causes by Azim Premji, Wipro Ltd’s founder. We have also come across many other donations, including a sizeable one from Bill Gates, whose Bill and Melinda Gates Foundation has an asset trust endowment of $36.4 billion (around Rs1.64 trillion). And, finally, you and I may not be as well known to the world as the names in this paragraph, but that in no way dilutes the values we hold and the difference our combined contributions can make to the world we live in. Welcome to the world of charity funds.
What is a charity fund?
A charity fund, also widely known as donor-advised MF, allows you and me to make a charitable contribution. If the law wants to give further encouragement, it will create a tax exemption to these contributions. (In India, we have section 80G of the Income-tax Act that exempts as much as 100% of the donations you make to certain registered charities, subject to an individual upper limit of 10% of your adjusted gross total income. For deeper understanding, talk to your tax consultant.) The contributions we make can be invested into the market, based on the asset allocation we decide. We can chose between a high equity-biased asset allocation to a high fixed-income-biased asset allocation depending on how you want your money to sweat it out in the market and fund your noble cause.
Choose the cause: Now that you have put your money to work, the next logical step is to decide the purpose you want to support. Many charities are registered with the fund and we can search for detailed information of what they do and then decide to support them. For those people who give larger sums, these funds also extend customized solutions for giving. In India, a ready-made repository of such charities is available on the GiveIndia website.
So if some AMC does make up its mind to create a charity fund, there could be a ready-to-use pool of charities that are already KYC (know your charity) compliant, thanks to GiveIndia. All your grants, the ultimate use of your money and the status of your giving account can be tracked online.
Simple, clear and transparent
This finds relevance in our country in more ways than one. Today, all the giving that we do is actually giving out of our capital—a one-time payment that instantly gets consumed by a noble and charitable cause. We aren’t creating a capital account, the returns of which can fund such causes. AMCs can manage our capital to create more value and increase the corpus by riding on market returns, thereby helping more such causes. By doing so, the industry can attract many more investors, a noble cause can get served and for all you know, charity funds can emerge as a large category altogether. We, the investors, would have created a sustainable annuity fund for charitable causes with the help of AMCs.
Let me introduce you to three such funds that have been widely regarded for doing this in the US. The first such fund is Fidelity Charitable Gift Fund. Since its inception in 1991, the power of over 56,000 donors has matched about a third of the Gates’ foundation endowment. Yes, people like you and me have that combine power. There is also an active interest taken by financial advisers to guide their clients on chipping in money into the gift fund. The size of this single fund is almost as big as the fifth largest AMC in India.The second is Vanguard Charitable Endowment Program and the third Schwab Charitable. The former was set up in 1997, and the latter in 1999. If I add the grants that both these funds have been able to provide, the combined power of the common man has equalled that of Premji.
Give and make a difference to the world we live in.
Rajesh Krishnamoorthy is managing director, iFAST Financial India Pvt. Ltd.
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