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New ETF tax free investment accounts launched

Africa Global Funds
March 30, 2015, midnight
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Computershare, as the administrators, and etfSA.co.za, as the portfolio managers and financial advisors, have launched a new tax free product in South Africa, using only Exchange Traded Funds (ETFs) as the investment constituents.

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Computershare, as the administrators, and etfSA.co.za, as the portfolio managers and financial advisors, have launched a new tax free product in South Africa, using only Exchange Traded Funds (ETFs) as the investment constituents.

Mike Brown, Managing Director of etfSA.co.za, said that ETFs are ideal for the tax free schemes.

“They pay a very high percentage of income received, through to clients as dividends or interest, so the tax free impact of reinvested income is maximized and also allow for capital growth strategies to be effectively pursued through a balanced portfolio of ETFs, focusing on a strategic asset allocation strategy,” he said.

The new tax free investment accounts fully comply with the new tax concessions, conditions and requirements announced in the South African Budget Speech last month and introduced from March 1, 2015, under Section 12T of the Income Tax Act.

The ETF Tax Free Investment Accounts (ETFIA) are distinctive from other products in focusing purely on investment accounts and for using only ETFs in portfolio construction.

The new tax free accounts will incur a maximum charge of 1% per annum for administration and portfolio management.

A major benefit of tax free investment accounts, relative to tax free savings accounts, is the potential they provide for long-term accumulation of capital, which can then be withdrawn on a tax free basis.

The ETF Investment Accounts will offer two distinct portfolio options – the low risk income bearing tax fee account with income growth rather than capital gains being the key objective, and the higher risk portfolio with the intention of generating tax free capital growth over time.

Investors can choose a combination of the two options.

Nerina Visser, director of etfSA.co.za, said: “We have focused on constructing ETF portfolios for clients with the following core objectives: using multiple ETFs to give a balanced strategic asset allocation portfolio; focusing on low volatility portfolios to generate long-term growth with limited standard deviation risk; reducing the concentration risk of the portfolios, by limiting the allocation to any single share on an aggregated basis; and selecting only liquid, low cost ETFs for inclusion in portfolios.”

“For instance, in the equity tax free account, the maximum exposure to any single share is less than 4% of the total portfolio,” she added.

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