UTI Mutual Fund: An efficient way to support parents

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There are hardly any products a person can buy to support parents, financially. Regulations don’t permit gifting of mutual fund units or buying an investment-based insurance policy by a child for his mother or father. 

To make it easier for those who don’t want to manage their investments actively, UTI Mutual Fund has launched a facility – UTI-FAMILY (Father and Mother I Love You) – that allows investors buy mutual fund units in their name but the returns go straight to a parent’s bank account. In this way, they can support their parent financially without the need to transfer funds regularly.

For this, UTI MF has earmarked two schemes – UTI MIS Advantage Plan (UMAP) and UTI Wealth Builder Fund (UWBF). The former is a monthly investment plan (MIP) that invests up to 25% in equities and the rest in debt instruments. In the past one year, the fund has delivered 11.83% against the 12.10% average returns of all funds in its category. Wealth Builder is an asset allocation fund that aims to invest at least 65% in equities and the rest in debt and gold exchange-traded funds. The fund has returns of 15.38% in the past one year. 

“MIP gives better returns than bank fixed deposit or debt funds. The asset allocation fund is more tax efficient as it is classified as an equity fund,” says R Raja, products head of UTI MF. UWBF, however, can be riskier and more volatile than UMAP because of higher allocation to equity could also give better returns over the long term.

To provide regular income for parents, the child needs to invest in any of these funds and opt for a systematic withdrawal plan (SWP). In this, you can opt for a fixed amount that needs to be withdrawn every month. At the time of investing, instead of his bank account details, the investor needs to provide any parent’s bank account. It also requires extra paperwork as the parent, whose details are provided, also needs to be Know Your Customer (KYC) complaint along with the investor. An investor also needs to provide proof with his relationship with the beneficiary.

Experts say that the facility makes sense for those who don’t want to get involved in managing their investments regularly. “Active investors can make supporting their parents financially as part of their overall portfolio. Depending on the horizon, tenure and funds, they can separately invest in equity diversified and debt funds that are more consistent performers,” says Hemant Rustagi, CEO, Wiseinvest Advisors. Rustagi also points out that in some cases a dividend option can work out to be better, especially if the corpus is significant. SWP can eat into the principal amount as the returns in no mutual fund scheme are static and should be done if the dividend yield of a fund is insufficient to meet the income requirement.

Tax experts say that as the investment is in the name of the child, he will be liable to pay income tax. The money parent received will be treated as gifts and will not attract any tax. In MIS Advantage plan, the redemption through SWP will be added to the income of the investor if starts before three years. After three years, it will be 20 per cent with indexation. In the Wealth Builder Funds, withdrawals after one year will be tax-free and will attract 15 per cent tax if withdrawn in the first year. "As the units are held in the name of the investor, and not the parent, other legal heirs cannot stake their claim. It could be a problem if a person gifts money to a parent and the funds are then invested in a parent's name," says Kuldip Kumar, partner and leader, personal tax, PwC India.

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