Tag: Unit trusts
Master Finances: Investment Terms
Leading up to the next ‘Mastering Investments 101’ workshop, we are mastering 4 basic Investments terms this month.
Everybody talks about Bitcoin but what is cryptocurrency really? Cryptocurrency is a digital or virtual currency or in other words a digital medium of exchange. Encryption techniques are used to generate units of the currency and verify transfer of funds. Cryptocurrency is not regulated or issued by a central authority / bank and is therefore seen to be independent from government interference or manipulation. The main advantages are: low transaction fees, fast process, more secure and transparency. The biggest disadvantages might be the price volatility and therefore quite risky for investors who invest their nest egg, it is not yet widely accepted and the probability that hackers might enter the system.
Unit trusts (also referred to a collective investment schemes) are portfolios of assets such as equities (shares), bonds (loans), cash and listed property. The investments of various investors are pooled and invested according to a specific investment strategy. Investors effectively buy units in the fund. The units have a unit price which in total make up the total fund value. The main type of unit trust funds include: Balanced Funds, Equity Funds, Fixed Income Funds (Bonds & Money Market), Index Funds, Offshore Funds, Money Market Funds, Sariah Funds and Real Estate Investment Trusts (REIT’s).
Offshore investments refer to direct investments in funds, shares, bank accounts outside of South Africa, thus foreign investments. Investors earn returns in dollars or the currency denomination of that specific asset. Offshore investments are not affected by the weakening of the Rand and also not by the South African economy or politics. There are exchange traded regulations to comply with.
Tax-free Saving Account (TFSA)
National Treasury introduced Tax-free Savings Accounts (TFSA) in 2015 to encourage South Africans to save more money. No income tax, dividends tax or capital gains tax are paid on the returns earned from these investments. Investors can invest a maximum of R33,000 (current annual limit) per tax year or R500,000 (current lifetime limit) over a lifetime which will be free of tax. It applies only to new investments and for certain selected type of accounts at designated service providers. TFSA’s include fixed deposits, unit trusts, endowment policies and exchange traded funds. Therefore ensure you do invest in a qualifying TFSA and select that it is a TFSA to qualify for the tax-free benefit.