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Whether it’s investing in a leisurely holiday, saving for a dream vacation or securing a deposit for a home, we all have goals in life that require money. We understand and know that each person is unique, which is why we help fundraise based on what you want to achieve, how much you need to invest, and when you need the money.
The last few years have been particularly challenging for the South African economy but your family members can choose from many investment options such as unit trusts, endowments and guaranteed anniversaries.
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A unit trust is an investment product that pulls funds and then invests funds in different asset classes such as cash, bonds, assets and equities. There are different options that meet different needs. If you want a low-risk investment, you can choose low-risk underlying funds that are invested in the money market or cash but with some exposure to the equity asset class.
Many product providers such as Alan Gray, Momentum, or Glacier offer a wide selection of underlying funds, ranging from conservative short-risk funds to aggressive high-risk funds that have proven excellent long-term performance. Unit trusts in South Africa are well protected and regulated by government laws and industry standards.
Unit trust investments offer a regular withdrawal option and this withdrawal can be formed from all underlying unit trusts or single unit trusts in your portfolio.
Some of the disadvantages of investing in a unit trust are that there is a tax effect on capital gains tax, you cannot nominate a beneficiary and you do not have a capital guarantee.
You would also think that if one were to consider investing in an exchange-traded fund (ETF) like the Satrix DV or the S&P 500.
ETFs carry a higher risk because they track a specific index. If the index performs poorly, it can have a negative effect on the overall performance. However, with unit trust investments, the funds are managed by a fund manager who can make relevant calls in different market situations.
Offshore investment is one of the ways to diversify your portfolio. South Africa can be seen as an emerging market and high risk; This is because emerging markets are often very volatile while established markets offer the potential for steady growth. By investing offshore, investors can participate in improved markets and have exposure to hard currencies such as the US dollar, pound, euro and Australian dollar.
A South African can take R11 million offshore per calendar year subject to tax clearance from South African Revenue Services (SARS). The clearance will usually be given to anyone whose tax matters are in a good position with SARS The first R1 million SARS may be taken offshore without prior clearance.
The attached endowments provide a certain tax-after-maturity value at the end of five years. The facility is based on the assets of the leading banks in South Africa and the endowment is underwritten by a specific life insurance provider. Investors looking for income over a five-year period may choose to include a fixed term annuity with a defined maturity value.
The bank guarantees a post-tax increase at the end of five years. If the property issued by the bank is the default, you can get less than the maturity value fixed after five years. South Africa has a developed banking and financial market. South Africa’s regulatory authorities continue to follow suit and implement international good-practice initiatives.
Income from the attached endowment will be taxed as per applicable tax table.
A guaranteed annual money is defined as an insurance product that is purchased from an assurance company such as Old Mutual, Sunlam or Momentum. You are guaranteed to receive a fixed monthly pension for the rest of your life from the life insurer. It also insures you against investment risks and longevity risks. This pension will be paid to you until you die.
The downside of this type of annuity is that your money dies with you and no money will be sent to your spouse or descendants. If you die sooner than expected, you will have your savings confiscated.
You can choose a guaranteed anniversary that will pay you for a certain number of years, or it will continue to pay your spouse even though it will be a small amount. Remember that the more protection you want from your annual, the less money you will get each month.
Annual rates vary and one life guarantee may vary from one company to another. Since you can get a different amount of income for the same amount you have invested, you should look for the best rate available at that time.
Life assurance companies consider a variety of factors when determining your annual rate, such as your age, your health, your gender, interest rate, and your annual preference.
It is very important for your family members to consider the advantages and disadvantages of the investment they choose to make. Proposed investments can make a wise investment decision by giving them enough insight as it does not only outline the benefits. But also the disadvantages.