Tax-free Savings Accounts with Equity Exposure

JOHANNESBURG – What are my options if I want to invest in a tax-free savings account with equity exposure?

Some Moneyweb readers may have pondered this question – especially those who would like to use tax-free savings accounts as a long-term investment vehicle. The inclusion of growth assets (like equity and listed property) in these accounts could also be important to outperform inflation in the long run.

From March 1 this year, individual investors can invest up to R30 000 a year in tax-free savings accounts. While the capital investment will be capped at R500 000 over your lifetime, all proceeds earned (interest, dividends and capital growth) will be 100% tax-free.

This article provides more information on the products available with some kind of equity exposure (unit trusts, index-trackers and ETFs). It does not include cash and bonds-only products, retail savings bonds or products offered by long-term insurers. Although it is fairly comprehensive, it is not exhaustive and there will be product providers that aren’t listed here.

The article does not constitute advice or a recommendation and is meant as a reference point to start your own research. Consult your financial advisor about the options available that best suit your needs. Also keep in mind that the fees listed may not be all-inclusive or directly comparable between providers. Fees could differ depending on the medium used to access the products or the type of savings vehicle.

Below is a list of product providers and a summary of their plans in alphabetical order.

ALLAN GRAY

Allan Gray has no plans to offer tax-free savings accounts at this stage.

CORONATION

Coronation will introduce a tax-free savings account as soon as it has clarified the eligibility criteria for underlying investments with National Treasury.

How long this consultation process will last is unclear, but it hopes to be in a position to introduce tax-free accounts before the end of 2015.

DISCOVERY INVEST

Craig Sher, head of product development, says all Discovery unit trusts and a full range of external unit trusts will be offered. Depending on the chosen funds, asset class exposure will include everything from equity to global stocks, fixed interest, property and cash.

Sher says the fees and minimum monthly investment still have to be finalised. Retail investors can start to invest from mid-April. More information will be available at www.discovery.co.za from mid-March.

INVESTEC ASSET MANAGEMENT

Daryll Welsh, head of product at Investec Investment Management Services (IMS), says Investec’s platform (IMS) will offer a tax-free savings account, which will allow access to a range of unit trust funds and ETFs.

“The tax-free savings account will be offered alongside our other iSelect products, which charge an annual fee of 0.4% on the first R3 million invested and 0.2% per annum on amounts thereafter,” Welsh says.

No initial product fees or exit fees are applicable.

Welsh says investors with other investments on the platform such as a retirement annuity or preservation fund will receive the benefit of these assets in calculating the applicable fee. In other words, the total value of all of the investments will be taken into account when determining the fee.

The minimum monthly investment will be R500.

“We anticipate taking the product live at the end of May,” Welsh says.

Information will be made available via www.investecassetmanagement.com

INVESTMENT SOLUTIONS

Investment Solutions will be offering the Real Return Focus Unit Trust and the Institutional Equity Fund. Both portfolios are multi-managed (by a variety of asset managers).

The Real Return Focus unit trust will invest in equity, property, bonds, cash and commodities while the Institutional Equity Fund will invest in equity, property, cash and commodities.

More information is available at www.investmentsolutions.com

MITONOPTIMAL

For more information, click here.

MOMENTUM

Mickey Gambale, head of discretionary investment solutions at MMI Investments and Savings, says a Flexible Tax-free Option is available through its Wealth Investment Series while the Tax-Free Education Savings, Tax-free Retirement Savings and Tax-Free Dream Savings are offered through the My Savings Portfolio (MSP). Momentum Wealth is an admin-only platform and the asset classes that an investor invests in should ideally be made in conjunction with a financial advisor, says Kapil Joshi from the same department.

The minimum monthly investment for the Flexible Tax-free Option is R1 000. It is R250 per month for the MSP (with a portfolio minimum of R500), Gambale says.

The products are already available. See www.momentum.co.za

NEDGROUP INVESTMENTS

Seugnet van der Merwe, investment analyst, says Nedgroup Investments will offer its entire range of unit trusts that is eligible within the regulation as tax-free savings accounts.

The range comprises of 21 unit trusts with a variety of risk profiles – it includes equity and speciality equity funds, asset allocation and core (balanced) portfolios as well as international funds to name a few. Almost all these products are available within the tax-free savings accounts.

Van der Merwe says no additional fees are charged for the tax-free wrapper. Hence, the fee structure for the unit trusts in the tax-free savings product is the same as for the existing range of unit trust funds.

The minimum monthly investment is R500 and products are already available.

More information is available at www.nedgroupinvestments.co.za

OLD MUTUAL

Richard Treagus, head of investments and savings at Old Mutual Emerging Markets, says asset class exposure in the Old Mutual Invest Tax Free Plan will depend on the investment funds selected by the customer from their range of funds.

“These are in form of unit trust and life funds that have exposure to equity, property, bonds and money markets,” he says. Old Mutual and other fund managers manage the unit trust funds.

The administration fee is 0.75% of the investment value per year, but reduces to 0.50% if the investor chooses to use the Old Mutual funds.

If the full R30 000 is contributed in the tax year, the fee reduces to 0.25%.

Fees exclude any advice fees, which are negotiable between the customer and the financial advisor or broker if the product is bought via a financial advisor.

The minimum regular investment is R350 a month. The minimum lump sum investment is R5 000.

The Tax Free Plan is available through financial advisors and will be made available directly online later in March.

A range of low-cost tracker funds is also offered.

More information is available at www.taxfreesignup.co.za

22SEVEN

22seven, the money management app owned by Old Mutual, offers two funds as tax-free investments via mobile phone – the Old Mutual Core Diversified and the Old Mutual Top 40 Funds.

The Core Diversified fund has exposure to local equities, bonds, property, cash and international equities while the Top40 fund tracks the performance of the Top 40 companies listed on the JSE.

The minimum investment is R350 once off or R350 monthly.

According to its website, the “fixed annual investment management fee for the Old Mutual Top 40 Fund and the Old Mutual Core Diversified Fund is 0.68% per year, including VAT”.

More information is available at www.22seven.com

PRUDENTIAL

John Kinsley, managing director of Prudential Unit Trusts, says they are offering a new Tax-Free Class (T-class) for some of their unit trusts.

The details are provided in the table below.

The minimum monthly investment is R1 000. The minimum initial lump sum investment is R10 000 – thereafter no minimums apply for lump sums.

More information is available at www.prudential.co.za/our-funds

PSG WEALTH

PSG offers the PSG Wealth Tax Free Investment Plan, says Rupert Giessing, head of product development.

Investors can choose between more than 50 unit trusts available on the PSG Wealth investment platform for this product.

“They may invest in any single manager unit trust that does not charge performance fees and offers ‘clean’ pricing,” he says. Clean pricing refers to the absence of a rebate fee structure.

Giessing says there is no initial charge or switching fees on the Plan and on-going fees will be charged at a rate of 0.228% (including VAT) for PSG Asset Management unit trusts.

For funds from other managers available on the PSG Wealth platform, on-going fees will be levied at 0.57% (including VAT).

The minimum monthly debit order amount is R500 and the minimum lump sum is R6 000.

Direct investors can visit www.psgonline.co.za and register for an account.

ROCK CAPITAL MANAGEMENT

Pierre van der Walt, director and portfolio manager at Rock Capital Management, says it has created a “B” Unit in its Rock Capital IP Top20 Global Fund that is compliant with the new legislation.

The fund invests globally with the current focus on South Africa and the US.

A flat fee of 1.5% per annum (excluding VAT) applies. No initial fees or penalty fees are charged. The minimum monthly investment is R500.

More information is available at 086 111 7625 or send an e-mail toinfo@rockcapital.co.za

SATRIX

Helena Conradie, chief executive officer of Satrix, says all Satrix products will be available as tax-free savings accounts.

The focus is on its flagship funds – Satrix 40, Satrix Balanced, Satrix Low Equity Balanced and Satrix MSCI World Equity.

Fees (excluding VAT) are 0.45% for Satrix 40, 0.6% for Satrix Balanced, 0.6% for Satrix Low Equity and 0.5% for Satrix MSCI World. All the other ETF funds charge 0.4% except the Rafi, which has a fee of 0.46%. The other unit trust fees are 0.45% except for Rafi, which has a fee of 0.6%.

For unit trusts the minimum monthly debit order is R500 and the minimum lump sum is R10 000.

For ETFs it is R300 and R1 000 respectively.

More information is available at www.satrix.co.za

STANDARD BANK CORPORATE AND INVESTMENT BANKING

Mark Humphreys, business manager at Standard Online Share Trading, says existing Online Share Trading (OST) clients can open a new tax-free savings account, which will be added to the list of available accounts they already control.

There are no (new or additional) fees for this account, but it does require being an OST client, which would have already been attracting a monthly fee of R70 including VAT. The cost of trading in the account is 0.25% plus statutory charges. All JSE-listed CIS ETFs are available for trade (approximately 40), he says.

To open an account click here: https://securities.standardbank.co.za/ost/

Humphreys says a tax-free savings account is also available through the Standard Bank Internet banking portal.

Investors have the choice of 14 ETFs and can elect a rand amount of between R250 and R30 000. This provides the investor the ability to have recurring small monthly investments (a minimum of R250 per transaction) or a once-off lump sum of R30 000. The cost of trading in the account is 0.25% plus statutory charges per transaction, he says.

To open an account log in to Standard Bank’s Internet Banking Portal and click on the Tax Free Savings Account tab.

STANLIB

Bongani Mageba, managing director of STANLIB Retail, says investors can choose funds from across STANLIB’s core range of Equity, Balanced and Income funds, including a range of risk-profiled funds.

It charges flat annual service fees on each of its funds. The Balanced Fund for example charges a flat service fee of 1%. No additional fee will be charged for wrappers.

The minimum monthly investment is R500 a month. A minimum lump sum of R5 000 can be invested.

Retail investors can start to invest within the first week of March.

More information can be obtained at www.stanlib.com

SYGNIA

Magda Wierzycka, chief executive officer, says the tax-free savings account is offered in the form of a unit trust investment through the Sygnia platform.

The options available are shown in the table below

Wierzycka says all of the products are passively-managed unit trusts.

The only other applicable fees are the standard operating costs of a unit trust. Based on the Sygnia Skeleton Funds’ latest TER (total expense ratio) calculations these amount to 0.05% per annum.

Hence the entire cost of investing in a Sygnia Tax-free Savings Account is 0.45% per annum, she says.

No initial fees, exit fees, switching penalties, transfer penalties, administration fees or other hidden costs apply.

The minimum initial investment is a R10 000 lump sum. The subsequent minimum lump sum investment is R5 000. The minimum monthly debit order is R500.

The accounts are already available. Go to www.sygnia.co.za