Charitable Mutual Funds (updated)

[Note: don’t assume you know what a Charitable Mutual Fund is. It’s an evocative but really misleading name but I don’t have a better handle for it yet. This is not an investment vehicle, it does not return any money. It is way to allow a donor to donate to one or more causes that match certain objectives. Please read on…]

Scenario: What if I wanted to make a charitable gift to reputable non profits, who work in my state, who focus on homelessness? I could research it with various services (such as GuideStar) I might see one or two that speak to me, and decide to write a check or two. Now of course they would come back to me a year later (or sooner) to ask for another donation, and maybe I would or maybe I’d like to pick a different one.

So here’s an idea that (literally) came to me in a dream. I don’t remember the story line but this idea stuck with me.

What if there was an organization (itself a non-profit) that automated this and did this for me. In other words, I would fill out a form describing the kind of work I wanted to support:

Screen shot 2011 03 11 at 11 05 21 AM

With that information I sent in a check for say $1,000.00. They would immediately apportion that check according to my specification and make one or more donations on my behalf. If I wanted to do this say annually, they would could manage that as well.

I call this a “Charitable Mutual Fund” because, like a mutual fund, a entrust a third party to ‘invest’ my funds according to a certain guideline that I give it. And I empower them to adjust the donations based on their judgement of the individual causes.

Now the term “Mutual Fund” could be very misleading and therefore might be totally wrong. It implies investment and appreciation. What I am describing here is not an investment vehicle at all and would actually not hold on to any funds at all, nor would it have any returns for donors.

Charitable Mutual Funds could either be “actively managed“, where a presumably smart board of advisors would determine the best and most deserving charities that matched my particular focus, or they could operate like an “index fund” where an algorithm would simply grab the 10 or 50 highest rated charities and distribute donated funds pro-rata.

Does this already exist? I did a quick web search and saw no evidence of it but it strikes me as something that easily could have been created before. At any rate, I am in no position to implement this myself. I also think it would be non-trivial to build with challenging legal, tax, confidence and marketing issues to figure out. But if it doesn’t exist, it might be a great boost to the world of non profits.

What do you think?

…….. later in the day……….

One problem with the idea as described is that makes the act of donating to a cause very impersonal. You always read, make sure you’ve looked into whatever cause you want to support to make sure it is what you are looking for. Follow what they are doing. Get to know them. The model I describe flies in the face of that.

Now of course the same could be (and was) said about stock mutual funds. Only invest in companies you really know, don’t just copy someone else’s investment ideas. But of course we learned that there is a very real role for stock mutual funds.

A second response would be that our service would have an option where you received a quarterly update indicating what charities were supported by your donations, what they have done, and so on. Or you could even have a chance to approve a change in the roster of charities that your donation would be going to.

So there are good ways to overcome this objection.

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