Flexible Investments are exactly as the name implies- flexible. You have access to your money when you need it so it is best suited for investors who will need liquidity of their capital. You can also add lump-sum capital investments anytime you want, these are called ad-hoc contributions. You can add regular monthly contributions as well as withdrawals on the capital. When using LISP’s such as Investec Asset Management and Allan Gray, you can start and stop regular contributions as you choose and without penalties.
What happens behind the scenes, inside the funds managed by the asset managers?
Investment/asset managers use the pool of money to buy into the following asset classes- shares, property, bonds, cash, or a combination of these. It may also be on local and/or foreign markets, depending on what exactly the mandate of the fund is. By buying into these asset classes they hope to provide capital growth and/or income and the actual return benchmarks are also determined by the mandate of the fund.
What are the tax implications for investors?
- Capital Gains tax on the disposal/switch of assets.
- Tax on interest received.
- Tax on dividends paid by a real estate investment trust(REIT).
The type and extent of tax payable will be subject to the type of funds you are invested in as well as annual exclusion/exemption usage. You will receive tax certificates of your various investments that needs to be taken into account and submitted with your Personal Income Tax returns.
It is essential for a Flexible Investment to form part of an investor’s portfolio because of the liquidity and flexibility and is even used by some as a form of emergency savings with the possibility of capital growth.
Ruvan J Grobler