Saturday, January 15, 2011

Business Proposition

One of my distant friends came up with a strange business proposition to which I wondered how he even thought of such a thing and why did I cross his mind to execute that. The thing was... he had no money or interest to do investments under 80C and he asked me whether I would be interested to buy mutual funds in his behalf, may be as a joint investment. If I am willing to do the same, he says we can share the tax benefit he would be getting out of that investment. Isn't this a legal and a cool idea, both in a single package?


sarath said...

i don't understand, how come you ll gt tax benefit. If I understand correctly, the proposal is,

If I am offering this, u ll buy the MFs on my name.

As I don't have the income, anyway i need not pay the tax now, 80C doesn't matter for me.

I see some problems with it:
- You do not get the benefit until u get out of this investment
- All investments are under my name, its a risk. (Just hope I don't default :-)

Ravi Kumar Mandala said...

He is not investing 1 lakh under 80C. So, if X selects MFs (of course ELSS type) which X think will yield good returns and have confidence in him, then X can invest in those funds in his/her name. When he submits those proofs 1 lakh in his taxable income will be out gaining him 30K as tax saving which is instant returns which he will share with X. After the lock-in period, MF will be redeemed by X. Which part did you not understand, Sarath?

g#0$t said...

Yes, you can do it. You are giving loan to a person and borrower could wish to invest where ever he pleases to (80c inclusive).

Downside is you can invest only on person you reply upon. Return of investment (1 lakh) cannot be expected until the lock in period (usually 5 years to qualify for 80c Investment) or until borrower has money.

Return on investment will be soon (after filing for tax).
If its shared (15k each), borrower will get to keep his full money. Investor will have to pay 5k of 15k as tax to govt (Additional Income).

I have been doing this for family members.