Allan Gray has launched its first tax-free product – a tax-free version of its flagship Balanced Fund.
The investment house joins a dozen or so of its competitors in bringing to market products that do not attract tax on dividends, interest or capital gains.
Tax-free investments were launched in March 2015 following an amendment to the Income Tax Act.
A tax-free investment may not charge performance fees, but can charge other fees. Allan Gray charges a fixed fee of 1.425 percent a year (including VAT) on its new fund, and the total expense ratio (TER) is expected to be about 1.57 percent, including trading costs, administration fees and VAT, Richard Carter, the head of product development at Allan Gray, says. This is slightly higher than the TER of 1.51 percent on the flagship Balanced Fund, which charges a performance fee.
You can invest in the tax-free Balanced Fund with R500 a month or a minimum lump sum of R20 000.
A balanced fund is a multi-asset fund, which means it invests in the major asset classes of equities, bonds, cash and listed property to diversify risk.
Allan Gray’s tax-free Balanced Fund closely resembles its flagship Balanced Fund in terms of mandate and objectives.
Like the Balanced Fund, it is suitable for investors who seek steady, long-term capital growth, are comfortable with market fluctuations, have an investment horizon of more than three years, and want to invest in a unit trust that complies with retirement fund investment limits.
Carter says that, over the long term, the fund will generate “meaningful value” compared with a non-tax-free unit trust investment. “The potential after 15 years could be as much as an extra 30 percent, driven by the value of compounding all gains tax-free,” he says.
You cannot contribute more than R30 000 a year, and no more than R500 000 over your lifetime, to a tax-free savings account. If you exceed these limits, the South African Revenue Service will impose a penalty of 40 percent of the value of contributions over and above the limits.
There are no restrictions on withdrawals, but withdrawals are not taken into account when your investment limits are determined.