Unit Trusts… the centre of the financial universe

What are they?  

images-20You get to invest for as little as a few hundred rand into a large investment pool which is managed by a fund manager according to a specific objective. The investment is priced in units (hence the name) based on the value of the fund. There are around 1000 to choose from locally and thousands more globally.


They are protected

They are carefully regulated and the fund is held in a trust and is not owned by the fund manager or service provider which offers protection over your investment.
Unit Trusts are used in most investments such as pension funds, endowment policies and retirement annuities in varying combinations.

They are easily accessible
The main benefit is their liquidity. They can be cashed in at any time and the fund manager has to pay you the unit value at the closing price on the day you sell. This provides easy access to your funds when you need them.

They provide access to different asset classes
Let’s say that you want to invest in property. You can buy a building and manage the project on your own with all the challenges that come with it. Alternatively, you can invest in a unit trust which focuses on property portfolios managed by experts. You can sell this at any time and you don’t have the hassle factor whilst you are investing. Selling is easy as you get the day’s closing price of the unit, whereas, a property takes a lot longer as you wait for a willing buyer and then the long process of changing registration before getting your money.

They are cost effective
There are no fees applied to selling units, however, you do pay a fee to buy them and while you are invested the fund manager, administrator and advisor (if you used one) will all charge you whilst they are actively involved in the investment. These fees are normally a specific percentage of the value of your fund and are collected monthly from your investment.

Unit trusts provide access to sophisticated investments with ease and protection. However, the choice of funds needs homework and often needs the help of an financial advisor.

Keep it real with Rule 72

With the Rule of 72 you can estimate the future value of your investments with uncanny reliability..

Inflation – the enemy

The inflation rate represents the rising cost of living which devalues your money resulting in a loss of purchasing power over time. To improve the value of your rand into the future you need to make investments which provide returns that are higher than the inflation rate.







Keep it real  

Real rates are important if you want your investment value to grow above the cost of living. The difference between the nominal rate of return and the inflation rate is the real rate which represents your actual value over time.

So lets use the rule of 72 to compare how various rates of return affect your future values. The rule is……..

Length of time it takes to double your money = 72 divided by the expected return on your investment

If you achieve 12% rate of return then you divide this into 72 and the answer 6 is the number of years it will take for your money to double in value. So, if you invested R10 000 at 12% in 6 years time you will have R20 000.

If you expect a 6% return on your money it will take (72/6=12) 12 years for your money to double. So the same R10 000 takes twice as long to get to R20 000.

The rule of 72 is a magical number which easily works out future values with amazing accuracy. We should all be mindful of how it can help to understand the future value of money.

Understanding inflation with the Rule of 72

The magical number 72 in the financial world can help you to get a better understanding of the value of your money into the future.

72 can be used in a a very easy way to establish values in the future with extraordinary accuracy.


Inflation is a measurement of the value of your money over time. The higher the consumer price index (CPI) the less your rand will be worth. That is the main reason why the Reserve Bank is mandated to keep the rate below 6%.

Let’s get an idea of how damaging a high inflation rate can be by using the rule of 72.

If inflation is 6% then simply divide 6 into 72 and the answer 12 is the number of years your money will take to halve in value.

So inflation at 6% will halve the value of the rand in 12 years.

If inflation was allowed to reach 12% then 12 divided into 72 results in 6 years. So it will take 6 years for your money to halve in value.

The rule of 72 will help to understand why it is so important to keep inflation under control and as low as possible. A little inflation is a good thing for an economy. However, if it is rampant then it will destroy an economy in no time. Just like Zimbabwe a few years ago when it reached a zillion percent.

It equated to money halving in value every hour. At the time it made financial sense to pay for a coffee at the local restaurant before having it as it would cost double by the time you finished it.

Just by dividing the expected rate into 72 you get a very accurate picture of how your money is affected.

Tax free savings account versus retirement annuity….

A tax free savings account (TFSA) and a retirement annuity (RA) are excellent investments as they offer returns which are not taxed. This vastly improves the performance of the investment over time. Understanding the differences between the two will help to make a more appropriate investment choice. It boils down to different strokes for different folks.


The common ground
Both vehicles enjoy tax free status on their investment returns. Capital gains tax , withholding tax on dividends and income tax on interest and rental income are all free. So they both offer same tax advantage on returns.

The limits
The TFSA has a limit of R30 000 a year to a maximum of R500 000, whereas, there is no limit to the RA. However, the tax efficiency of the RA is more beneficial the higher your tax rate. The deduction is limited to 27,5% of taxable earnings.

The advantages
Liquidity is the main advantage of TFSA. You can access the funds at anytime.
RA is inalienable – meaning that creditors cannot touch your investment. This may prove to be useful for business owners.

The conclusion
So TFSA is for the lower tax payer who needs access to the investment in the short and medium term.
RA suites the higher tax payer for the long term where access to cash along the way is not an issue.

There is a strong case for investing in both.

3 ideas for a better tax return.

Filing season opens on the 1st July 2016 and it’s too late to do anything about last the tax year. You are on top of your tax return when you know before you complete the return what to expect. Tax planning should take full advantage of all options before the end of the tax year in February. Completing the tax return then becomes a formality.







Here are some ideas to work on before February next year.

Medical aid
If your saving account runs out during the year keep on sending the medical bills to your medical aid company. They tally the expenses for you on your tax certificate as not being paid by the scheme. This amount is claimable on your return after certain limits. This will save you keeping records as proof for SARS.

Retirement contributions
This year you can deduct up to 27,5% of the contributions made towards your retirement funds against your taxable earnings.
This is a huge opportunity to get more into your retirement savings at lee cost. You effectively get back what ever your marginal tax percentage is. So, if you pay 41% tax then you receive 41 cents for every rand you save.You can make a top up to the maximum limit before the end of February 2017.

Capital gains tax
If you are planning to sell off an investment such as a uint trust or gold coins, then take full advantage of your exemption on capital gains tax by selling off your assets over different tax years. You could sell before the end of February 2017 and then in March 2017 and this way the disposal of the assets gets a double deduction. The current inclusion rate on CGT is R40 000 per annum.

You should e-file your return before the 25th November 2016.