Get the most out of every rupee you donate

Knowing where and how your donations are being spent is as important as the tax breaks

Tax breaks shouldn't be the only reason why people make donations to help poor children fight disease or other issues. However, knowing what is the 'cause' for your donations and how it is being used could go a long way in making every donation a rewarding experience. More financial companies have been increasingly raising more resources and advising more people in making more effective choices and to the right causes individuals care about.

Financial companies have been advising individuals on how they can go about creating trusts for individuals to ensure continuous support to the right causes through their family office wings, and advisory services. Asset management companies have launched funds for certain causes.

For starters, there's the HDFC Cancer Care Fund, in which individuals can make investments and allocate the income from the fund to cancer patients. In the past three years, this fund has generated about Rs 4 crore per annum for cancer patients from a little over 2,000 investors. In the first instance, the fund collected Rs 80 crore as corpus, while HDFC Mutual Fund did not charge any fund management fee.

The fund will invest the entire corpus of this fund in debt instruments while investors have the option of giving 50 per cent or 100 per cent of the income from this investment to cancer patients. Says Milind Barve, managing director: "Society needs a sustainable source for raising resources so that they can get a full treatment done for patients. Every year, we generate a return that is given to them. At around nine per cent on the invested corpus, the returns were about Rs 4 crore per annum."

The scheme is simple for investors, as all one needs to buy is units of the fund. Investors will also get a tax certificate for section 80G depending on their donations. The fund is a three-year closed end fund, after which the principal will be returned to the investor. This year, HDFC Mutual Fund will make a matching contribution to the Indian Cancer Society for the amount donated by the fund every year.

Another way to donate is through payroll-giving programme where employees can decide how much they want to give, and to which charities. They are offered by some employers, through which employees can participate voluntarily. Says Dhaval Udani, chief executive officer of GiveIndia: "This is one of the most common ways of giving and can be applied across industries. Today, most people want to give, but struggle to find the right way. We have seen an increase of 30-40 per cent in the past three-four years in donations."

Financial companies are also advising clients on giving to the right causes and organising various events and shows for the right causes. For instance, EdelGive Foundation, an initiative of Edelweiss Financial Services, recently organised an exhibition of paintings, the proceeds from which will be donated to causes the foundation supports. Over the years, the Foundation has donated Rs 23 crore to organisations in the areas of education and livelihood.

The Foundation also provides diversified investment options in non-profits and monitor the progress and impact of one's donations. Individuals can form their own trust and ensure a certain amount is given to their favourite causes regularly. Says Vidya Shah, chairperson: "Contributions are remitted directly to non-profit organisations as Edelweiss bears Edelgive's administration expenses. There are various initiatives that individuals can participate in such as charitable events or forming organisations where individuals can donate on a continuous basis. Individuals can structure charities in such a way as not only to keep costs low but to also ensure it goes towards and is used for the causes they want to support."

If you are making a donation to your favourite charity or non-government organisation (NGO), you might want to know how the NGO is using the money. The first thing to check is the cause of the charity and how they are using the donations. For example, donations from HDFC's Cancer Care Fund will be used for poor patients whose annual income is less than Rs 1 lakh. You can find out such information from the website of your charity.

Usually, donations are tax-deductible to the extent of 50 per cent of the amount (from the taxable income). However, there are some projects that have a tax-benefit of 100 per cent of the taxable income. Says Udani: "A 100 per cent deduction is usually not standard and varies from project-to-project. But donations to most projects and organisations usually get a tax deduction of 50 per cent from one's taxable income."

For larger donations, forming a trust might be the way out. You might want to give certain financial or other assets through gifts, which can ensure a regular stream of income to the charities of your cause. One can create a trust where the annual earnings can go to some of the favourite charities or where the beneficiaries get the remaining assets when the trust is dissolved. Wealth management firms and family offices have been advising individuals on creating, and running a trust for charity targeted at specific causes.