HDFC Chartiy fund for cancer cure

This structure seems super interesting for raising public funds.

@Bhuvan, can you share more info on this? Possible to donate 100% of the upside? This can almost be turned into an endowment fund structure.

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HDFC has been doing this since 2011. They’ve raised over Rs 560 cr in total over the 3 series of funds and HDFC MF has contributed Rs 105 cr odd or so.

Fund structure

It’s a close end fund. So, people can only invest in the fund during the new fund offer period (NFO). After that, fresh investments will be closed. All closed-end funds have a fixed maturity, and at maturity, the money will be sent back to the investors.

Specifically about the Cancer Cure Fund, this is a fixed income fund, meaning it only invests in bonds. Investors in the fund have the option of donating 50% or 75% of the capital distributions in the fund. I’ll simplify that further. A mutual fund is a wrapper that holds stocks, bonds, and other asset classes. In this case, the fund only holds bonds. When you invest in a closed-end debt fund, there are two ways you can get your money back:

  1. Periodic income distributions. In mutual fund parlance, this is called “Income Distribution cum Capital Withdrawal or IDCW”
  2. Maturity proceeds after the fund matures.

What’s income distribution?

Since this is a fixed income fund, the bonds inside the fund get interest payments. HDFC then takes those interest payments and distributes them (earlier, these distributions were called “dividend”). When it distributes income, the money hits the bank accounts of the investors. At the time of the NFO, HDFC creates a mandate in the name of the Indian Cancer Society. When the money hits, the bank account, 50% or 75% of the money is sent to the society. Since mandate had to be created, the NFO is offline only. They haven’t opened this on digital platforms, but doesn’t seem impossible either.

Why close ended?

To ensure there’s predictability of flows. Because investors cannot get in and out of closed-end funds. With open ended funds, there’s a chance that people might panic and sell the funds.

Why only 50% or 75%?

Income distributions (IDCW) from mutual funds are taxed at the slab rate. They’ve kept it at 50% and 75% to ensure there’s no tax outgo over and above. The donations are eligible for 80G benefits. In this case, only the interest payments from the bonds inside the fund are distributed to the investors and then donated to the society. The capital remains protected.

Scheme presentation

NFO Presentation - HDFC Charity Fund for Cancer Cure (A Fixed Maturity Plan).pdf (2.2 MB)

My notes

  1. I think with some creative jugaad, a more tax efficient fund can hypothetically be created and 100% of the upside can be distributed.
  2. At the bare minimum, fund structures also, to my mind, seem useful here. Interval funds are closed-ended funds with period entry/exit windows.

Please reply back if some of these terms or concepts seem unclear.

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Thanks @Bhuvan for the explanation.

Also noted that HDFC AMC will match the donation with an equal amount (subject to a limit of ₹16 crore per financial year).

HDFC AMC has waived all investment management and advisory fees for this scheme, ensuring that the maximum benefit goes towards supporting cancer patients in need.

Good financing vehicle - we need many more such innovative funding schemes by asset managers / financial community.