This festive season, why not extend the joy of giving to more than the yearly bonus? Beyond the patronising hand-me-downs that go to maids and drivers, can we still make a difference? Can we use our understanding of finance to bring joy and comfort to those around us, who support us all the way?
Financial inclusion can begin at home. Enable a zero-balance bank account for your household helps and drivers, by taking time out to go to a nearby bank and completing the paperwork. Besides the ration card or driving license, little is needed. Get them enrolled into a micro-systematic investment plan (SIP) with a diversified equity mutual fund, and commit to payment of a fixed sum every month on their behalf. Micro-SIPs are investments of not over Rs 50,000 a year, and can be done in denominations of Rs 100 upwards, on a monthly basis. Micro-SIPs and zero-balance accounts accept electronic transfers. You can manage the investment through a one-time set up of transfer from your account to theirs, and onward to the mutual fund. PAN (permanent account number) and KYC (know-your-customer) are not required for a micro-SIP.
You can also generate an additional bonus for them. Place a lump sum into an equity-oriented hybrid mutual fund (balance fund), with a yearly dividend track record, in your name. Direct the dividends into a bank account, which you hold jointly as a second holder, on an either or survivor basis. Choose a diversified or balanced equity, which has the track record of declaring one dividend a year. It can generate an yearly bonus for your man/girl Friday, enabling him/her to celebrate the festivals with additional spending power. The mutual fund investment will be in your name, and will appreciate to the extent that all appreciation in value is not distributed as dividend.
If you have long-serving staff who have supported you through thick and thin, enable them to enjoy a benefit that befits their loyalty to you. Indulge in some financial engineering. You can buy them gold this Diwali. Offer them a loan to fund this purchase by entering into a simple hypothecation agreement against the gold. Allow them to repay the loan through a monthly instalment to you. You can deduct the amount from their salary if you wish. Be generous and allow a subsidised or interest-free loan.
Invest the instalment amount in an equity fund as an SIP. When the amount reaches the level that repays their loan and the interest you may have charged them, free the hypothecation. Allow the equity market to repay a part of the loan over a long period of time, somewhat relieving the loan burden. Be willing to take the hit if the equity markets remain flat or fall, accounting for their repayments at actual. This scheme places a high onus of honesty on you, since they would pay the money, and the gold will remain with you until you have recovered your loan. Do not worry about the minor tax implications for you; open your heart a bit more. Encourage them to save and build assets with your help.
If your staff have children who are minors, you can put aside money that can accumulate over a period of time. Since you will not be the natural guardian of the child, a bit of paperwork will have to be completed. Open a mutual fund folio in the name of the child, register the parents as the guardian (PAN will be needed if the investment is not a micro-SIP).
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When you invest into this folio, you are a third party and you will need to complete additional formality of the guardian authorising you to invest into the account (usually a letter). Electronically transfer funds from your bank account to the folio of the minor, on the SIP date.
The risk in this arrangement is that the parent, as the guardian of the child, will have access to the folio and can operate it to redeem the fund. The responsibility of dissuading them from doing so is yours.
Take the trouble of walking that distance to achieve financial inclusion those that work for you. Bring the benefit of long-term investing to those who need the most. Usher prosperity this season into homes of those who help run yours.
The writer is managing director, Centre for Investment, Education and Learning. Views expressed are her own