Let’s usher in the New Year with lovely gifts for all loved ones… but wait, what can you give that will leave a lasting impression? Not show-pieces, they just pile up in the show case; not clothes, what if the receiver doesn’t like them or worse, isn’t the perfect fit; not gift vouchers, they are too impersonal…. Then what?
Have you ever considered financial gifts that will not only brighten their day, but will keep returning and even appreciate over time? Now, that’s something the latest videogame or a fancy pair of shoes cannot offer! Be it for family members and friends, or employees or housekeeping staff, there are some novella gifting ideas from the financial space that will not pinch your pocket yet deliver your care and affection in all earnest.
Traditionally, India has been dealing only with cash as a gift option. Being the most alluring symbol of instant gratification, most Indians can’t see or don’t wish to look beyond it when it comes to financial gifting. But in reality, the options are aplenty and range across the space from mutual funds to ETFs and from simple bank accounts to pension products.
Then why is it that the field has not found many takers in India? Given the modest lifestyle and also lack of awareness, we have always preferred to operate in cash. Even in households with the wherewithal to make financial gifts, cash is king simply because both parties – benefactor and beneficiary – instantly recognise the worth of cash. Momentary pleasure has always trumped long-term planning which is also the main reason why savings are minimal in our nation despite increasing per capita income and retirement plans and pension funds are finding it necessary to push hard to get subscribers.
The biggest impediment to financial gifting is lack of education and awareness about the financial arena. While the government plows ahead with its plans for financial inclusion, people are oblivious of the terms and conditions of non-cash financial products. You can gift a share of a blue-chip company or units of a renowned mutual fund to your loved one in all earnest, but without understanding the market mechanics, the receiver will probably not be able to appreciate the gift.
"Acting as a deterrent to financial gifting even among people with the knowledge and the means to make financial rewards is taxation," says Subash Srinivasan, a tax and finance professional. Asset transfers, loans and sponsorships may involve serious tax implications. Transfer of shares or mutual funds too is treated as sale of asset and comes under the income tax scanner. Also falling within the IT ambit is Wealth Tax. "Many are unaware that a gift from a close and direct relative is non-taxable to any limit, including wedding gifts, as is a gift of value less than Rs 50,000 in a year from non-relatives," he says. There is also the high transaction cost for low-value products that act as a big deterrent.
Poor management of personal finances is yet another factor. "Many families are hardly aware of their own financial and retirement needs; expecting them to study the implications of gifting is often a far-fetched," says Sudhir Raikar, Head of financial literary initiatives for Financial Literacy Agenda for Mass Empowerment (FLAME). "It circles back to the acute need for financial literacy and effective financial inclusion. Without commensurate awareness, people will always choose the seemingly easier option of cash gifts," he says.
Financial education holds the key to opening up this field in a big way. Non-cash options are aplenty for those who want to take a run at it by gifting unique and useful items that the beneficiary will treasure and can reap the fruits from over longer time durations. There is something for everyone...
1. It is child’s play
The time your child starts asking "May I have that" at the store is the time you should start inculcating a savings habit. Instead of a toy that may lose value within a week or a month, how about you gift a piggy bank or even a savings bank account or both? Encourage the young to save pocket money in the piggy and transfer it to the bank account whenever it touches a pre-determined milestone. This ensures saving mentality is instilled and they grow up money-smart, while reaping years of returns on investment. Take the child along when you visit the bank. The child can see how transactions are done, can see the corpus growing, which will not only help him/her understand banking and money-mechanics, but goes a long way in helping to lead a financially disciplined life. The rule of thumb here is- the earlier, the better.
For the slightly elder, there are postal savings schemes such as the National Savings Schemes (NSC) with a five-year investment period and the Public Provident Fund (PPF) which requires an investment of just Rs 500 a year to keep it going.
In the social netherworld of the teens where peer pressure to carry plastic can become overwhelming, a prepaid card or gift card can come across as a saving grace. A relatively new concept in India, the gift cards issued by banks is a type of a debit card that you can operate without a bank account because it has already been paid for. This tells the youngster—"Here is X amount of rupees valid for X time period. It is up to you how you spend it and make it last." You can also ‘recharge’ the card occasionally.
2. A little more love
Oh yes, your spouse might love to receive snazzy designer clothes or a fancy chronograph (a high-precision watch). And of course, gold jewellery is ever-green as the perfect gift that instantly provides gratification as well as serves as an investment for the future. But, this new year, how about bucking the trend? Have you considered gifting Gold ETFs instead? It serves the same purpose and can be traded at any time, much like physical gold, while it frees you from safety or storage concerns. Other great gifting options are mutual fund investments, retirement plans or insurance with health benefits. In your earning heyday, you may live a pleasurable life. But as you grow old together, both of you may find it difficult to support the lifestyle you had become accustomed to. This is why a retirement plan is imperative, and it makes for a great gift that shows that you care till the end of the life’s journey.
3. For your pillars of support
All that aging parents and grandparents seek are care and company as they continue to watch over and cherish your accomplishments in life. Having devoted themselves to educating you and supporting you to the best of their abilities, why not return a small part of the favour by proving them financial and health security?
Investing in a fixed deposit in their name is an excellent gift. Not only will they be able to avail higher interest rates, it will also provide them a sense of financial security and a means to fall back on. A mutual fund gift scheme is yet another option that will earn them a monthly income.
Insurances may however be a little tricky. Service providers have limited schemes for senior citizens, especially with regard to health insurance. However, exercising the co-payment option can open up an array of schemes available for them under the scope of insurances. Under such products, when the insured party claims an amount, a pre-determined percentage is paid by the company and the remainder of the claimed amount is to be paid by you on behalf of the claimant.
It works the other way too. "Grandparents in particular would do well to study all available options of gifting tax-free financial products to their grandchildren - whether life insurance, mutual funds or stocks," says Sudhir from FLAME.
4. Buddy packages
A beer pint or bottle of wine is guzzled off and it vanishes within the minute. The book you gift may lay unread gathering dust. Here is a great gift from the financial space that your friends and relatives will cherish: Shares of a blue-chip company. It is a unique and unusual gift, but very valuable all the same. Not only will it be of sentimental value to the receiver, but the lifelong returns through dividend payments and price increases will go a long way in ensuring you are forever remembered.
Fixing up appointments with a financial advisor for a newly married friend or relative is another innovative yet thoughtful gift. On the same lines is subscription to a financial magazine that will help them understand money and give tips to save better.
5. Helping the helpers
Maid servants, drivers, gardeners, security guards, lift-operators, all seek chanda at every possible occasion. It is alright to indulge them for the services they offer all year round, but there is always this feeling that the cash you give is only going towards alcohol orgutka. Did you know the financial space has specialised products for the low-income group and the small investors? The primary issue is, we know, but they don’t. It is up to the employers to explain the products and the benefits with their hired help. So this New Year, how about you sit them down and chart out a suitable scheme for them?
Start off with helping them open a simple bank account. You could discuss the option of putting a small part of the salary you pay them into a recurring deposit (RD) for them. Explain the process and the benefits, and let them operate the account themselves so that they know their money is safe. Postal savings schemes are other easy alternatives that can be gifted to the needy. Workers are most vulnerable to health issues and accidents. Rising cost of living egged on by inflation only pushes treatment for even curable diseases out of their reach, forget emergencies. For this reason, a mediclaim health cover or an accidental cover of a small amount would be a gift that adds security to the whole family. Another option for a gift is helping the worker avail subsidies through Aadhaar by helping them with the paper work. Some state governments also provide free insurance cover to the workers if registered with the labour department.
Yet another interesting product that can be gifted as a charitable activity is a pension scheme. For domestic helps and workers, pension is an alien concept, but can be extremely valuable if you really do want to make a difference to their lives. Initiatives such as Micro Pension Foundation’s Gift-a-Pension are aimed exactly at that—giving the poor too a chance at retirement planning and financial security.
There are more such financial products that one may explore as a gift that will be rewarding for the long term. Stocks and mutual fund units, insurance policies, bonds, debentures, money market instruments, retirement planning products, REIT schemes, plastic money and bank and postal products are only a few gems from the treasure trove.
"Financial gifting obviously necessitates accurate knowledge of our financial positions, our net worth and cash flows which will help define our gifting goals. You need to have cent percent clarity on the specifics of each case. This may require you to study gift tax definitions, exemptions, limits, rules governing transfer of assets, gifts to children, gifts on special occasions, gift of movable and immovable property in greater depth and if it is something as intricate as bequeathing, you also need to take into account incidentals like attorney and accountant fees," Sudhir points out.
Hence, it is not as easy as pulling out a wad of cash from your back-pocket and handing it over as gift, but there is no gain without a little pain! A small thoughtful and researched gesture from you can go a long way in securing someone’s future. So what are you gifting this season?