What is the most appropriate Saving and Investment Vehicle for you?

Most new investors have no idea where to start and existing investors are sometimes unsure of how to further diversify in the structures they invest in. Here is a breakdown of some of the conventional options offered by Bovest:

Flexible Investment

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.

Tax Implications:

  • 40% CGT on the disposal of assets.
  • Tax on interest received.
  • Dividends paid by a real estate investment trust(REIT).

Endowment/Sinking Fund

The minimum investment term for an endowment product is five years- you are allowed to make one withdrawal and one loan in the first five years. You can either invest a lump sum or pay a monthly contribution until the end of the term of the policy, or a combination of the two. From year two onwards you are not allowed to make more than 120% of your first year’s contributions.

The interest- or growth rate depends entirely on the underlying investment funds chosen which should fit your unique needs in terms of risk appetite and capital protection needs. Endowments may be used as security on loans and even be used for estate planning purposes.

Tax Implications:

  • 12% CGT on the disposal of assets.
  • Income tax rate in an endowment is fixed at 30%.

Tax Free Savings

Contributions to a tax-free savings account are made from post-tax income and gives you the liquidity of a flexible investment. The total annual contribution in a tax year may not exceed R36 000 per tax year and your total lifetime contribution may not exceed R500 000.

A tax-free savings account is therefore an effective way to save for your goals as any interest, dividends or capital gains from your tax-free savings account will be free of tax.

Tax-free savings accounts can be used for the following purposes:

  • Tax utilisation
  • Long-term investing
  • Supplement retirement savings

Retirement Annuity

This long-term investment vehicle is specifically designed to provide you with provisions for retirement. You can contribute up to 27.5% of your annual taxable income to Retirement products, or a maximum of R350 000. This can be in the form of monthly contributions or ad-hoc capital contributions.

A portion of your contributions are tax deductible and will effectively lessen your tax burden or possibly provide a tax refund from SARS.

When you reach the age of retirement of 55, as set out by The Pensions Fund Act, you may convert your retirement capital into an annuity that will pay an income to you. Before you decide what to do with the capital, you can either invest the full amount or you can take 1/3 in cash as a lump sum and the 2/3 of the capital that’s left will be invested.

You have a R500 000 tax-free lifetime limit on this 1/3 lump-sum and the rest will be taxed according to the Retirement Lump Sum Withdrawal(retirement) table as below.

It is extremely important to remember that your own specific needs and current portfolio must be taken into account before investing in any of these vehicles. That’s why it’s always in your best interest to seek the help of an independent advisor before committing to any investment.

Ruvan J Grobler RFP™

Photo by Jeremy Bishop on Unsplash

Leave a Comment

Your email address will not be published. Required fields are marked *