Invest with a heart

Many corporates and institutions have, in recent years, shown greater inclination towards philanthropic activities. HDFC Mutual too has joined this list with the launch of its close-ended fund, HDFC Debt Fund for Cancer Cure (HDFCC). This three year capital-protection oriented scheme will enable unit holders to donate full or part of the dividend declared by the fund to an approved public charitable trust ? Indian Cancer Society (ICS). Such donations will be utilised by the trust to provide financial aid for cancer treatment, nutritional supplement, accommodation and counselling.

Uniqueness

HDFCC stands out for a few special features. One, the fund doubles up as an investment vehicle and also helps contribute to charity. Two, donation of the dividend declared by the fund is eligible for deduction under Section 80G of the Income Tax Act. And thirdly, as the objective is partly charitable in nature, no investment management and advisory fee would be levied by HDFC AMC, although there would be some recurring expenses incurred to run the fund.

Features & Strategy

The fund proposes to predominantly invest in non-government debt instruments including commercial papers, non-convertible debentures, certificate of deposits and fixed coupon bonds besides money market instruments, however, only in those fixed income instruments that have a rating of AAA or AAA (so) by CRISIL or its equivalent. It will also invest up to 20 per cent in government securities.

Benchmarked against CRISIL Short Term Bond Fund Index, the fund has a rating of AAA (so) by CRISIL indicating highest degree of certainty of repayment of capital invested.

The fund seeks to declare dividends on a half-yearly basis although there would be no assurance on this. HDFCC provides only one option ? namely dividend payout. Investors may opt to donate either 50 per cent or 100 per cent of such dividend declared. The amount would be automatically contributed to the ICS. The dividends, as is the case with all mutual funds would be tax-free in the hand of the investor.

The fund cannot be redeemed until its maturity at the end of three years and the amount outstanding would be repaid after this period. However, like all other mutual funds, there will be no guarantee on the returns. Capital gains, if any, would be taxed like any other debt fund on maturity. While units of the fund would be listed on the NSE, they may be sparsely traded, given the fund's objective.

Suitability

HDFC Mutual has a consistent track record of managing open-ended debt funds as well as Fixed Maturity Plans. The performance of the new fund would be subject to interest rate risk and credit risk. The latter, to some extent, would be mitigated as the scheme plans to invest in instruments with high credit rating. The fund may trade on some instruments or hold them till maturity based on market conditions. At present, a 90-day commercial paper yields 10.26 per cent while three-month certificate of deposits by banks on an average carry a rate of 9.8 per cent.

The fund is suitable only for those investors whose primary objective is philanthropy than generating high returns. While the returns (post contribution to charity) cannot be expected to beat high inflation levels, it may nevertheless yield better than liquid funds or interest rate on savings bank. Capital gains tax, if any, may also be lower than the income tax under regular slab, especially for those in the higher income scale. The minimum application of Rs 1 lakh suggests that it is for investors with sufficient surplus. The fund is open to regular mutual fund investors like NRIs , HUFs, FIIs and corporates. The NFO closes on March 4. The fund will be managed by Mr Anil Bamboli, who manages other debt funds such as HDFC Multiple Yield Fund and HDFC High Interest Fund.

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