Checking in with the Nedgroup Investments Stable Fund
- Portfolio construction is prudent, with a focus on capital preservation while also ensuring sufficient exposure to assets which are expected to deliver the necessary returns to meet clients’ expectations
- Since the middle of 2015, Foord have increased duration from less than one year to almost four years currently.
Education is expensive. It can range from anywhere between R230K to R3.2m after tax, depending on the schools1) and given the current economic and political environment, it could become even more expensive. Now, more than ever, parents could benefit from thinking ahead and opening a tax-free investments (TFI) account to help in paying for their children’s education.
|3 years||5 years||7 years||10 years|
|Total contribution||R99 000||R165 000||R231 000||R330 000|
|Low equity balanced|
|After tax growth||R13 436||R36 727||R76 790||R163 493|
|Annual tax saving (excl. CGT)||R13 436||R36 727||R76 790||R163 493|
|Expected value||R13 436||R36 727||R76 790||R163 493|
According to Donna Barnes, product owner for tax-free investments at Nedgroup Investments, tax-free investments - a government-supported savings vehicle designed to encourage South Africans to save more - are ideal for parents preparing to pay for a child’s education. “Investors are able to invest a relatively small amount of money and take advantage of the medium- to long-term benefits of compounding, without paying any tax on interest, dividends or capital gains. The additional tax savings these investments offer can also add up and compound over time - growing into a substantial investment which can go a long way in covering education costs,” she explains.
To illustrate that ‘TFI is a no-brainer’, Barnes unpacks the table below. If you stick to this monthly discipline for five years in a low equity balanced fund, your R165 000 contribution can be worth just over R200 000, or over a 10-year period your R330 000 contribution can reach to just over R500 000. In addition, you are not subject to any capital gains tax (CGT) at withdrawal and you will be able to put the full expected value in your pocket, unlike withdrawing from a normal unit trust investment.
Education is one of the most formative influences in a child’s future. However, with debt levels so high and financial pressures on the rise, many South Africans only realise the full extent of the cost of education once a child starts school – and this then adds to the financial burden of a household.
With tax-free investments, investors can invest as little as R500 per month and take advantage of the tax savings.
“Tax-free investments, if used wisely can have significant and positive long-term financial consequences. The key is to start contributing as soon as possible – and to try to contribute the maximum annual allowance to get the full benefits of the tax savings over time,” says Barnes.
Investors can contribute up to a maximum of R33 000 per year (R 2750 per month) or R 500 000 over a lifetime into a tax-free investment.
Furthermore, Barnes says that tax-free investments are flexible so, should the money be required in an emergency, it is possible to access it. “It is also possible to open up a tax-free investment on behalf of a family member or a child. This way, when the child turns 18 and takes over ownership of the investment they could have a substantial investment that enables them to start their lives without soliciting enormous debt,” she adds.
Barnes concludes, “We have been encouraging investors to explore the savings opportunities that tax-free savings can provide and we have seen very encouraging interest in our tax-free funds since they were launched over two years ago.”
For more information on the benefits of tax-free investments and how to invest in tax-free investments, visit http://www.itsanobrainer.co.za