Unit trusts offer an easy, convenient way to invest. Simply put, a pool of investors' money is used to invest in financial instruments such as equities (shares) and bonds. This pool is then divided into equal units where each unit contains the same proportion of assets in the fund. Investors then share in the fund's gains, losses , income and expenses.
The wide variety of unit trusts means that they are an ideal way to build up a well-diversified investment portfolio tailored to meet your specific needs, risk profile and investment requirements.
- Unit trusts are a cost-effective way to access a share portfolio.
- You get full-time professional management of your money.
- Unit trusts are flexible and transparent. Investors are not tied in and can access their money at any time.
- Unit trusts are one of the most tax-efficient ways of investing (providing tax exemptions on interest income, capital gains tax exemptions).
- Unit trusts continue to offer exciting capital growth opportunities over the medium to long term.
There are various retirement products available from Old Mutual Unit Trusts, including the Old Mutual Unit Trusts Retirement Annuity Fund, Preservation Pension Fund, Preservation Provident Fund and Living Annuity. These different products have rules, requirements and tax treatment that are specific to each product.
Our unit trust portfolios can be bought within these “product wrappers”. Unit trusts are an affordable and a simple way to save (and preserve) for your retirement or from which to draw an income in retirement as they offer you the choice and flexibility to invest in portfolios that are suited to your life stage. An example of this is to invest into portfolios with high equity content when you are young and volatility is less important than significantly outperforming inflation over the long term, and start to moderate the equity exposure by switching to more stable funds as you near retirement and can afford dealing with a significant market correction.
Unit trusts portfolios bought within a retirement product wrapper incur no extra costs as would be charged in a standard unit trust portfolio, in other words, there is no cost that a client pays for the “product wrapper”.
Depending on your personal situation, there generally are significant tax benefits to investing or preserving money for your retirement in one of the above-mentioned vehicles. These include that money invested into retirement annuities (up to certain limits) are tax efficient as the amount invested is deducted from your income before tax due on your income is calculated. Capital growth on these investments and dividend and interest earnings are also tax free within these retirement products.
A fund fact sheet or minimum disclosure document (MDD) is a document about a unit trust fund offered by a management company which is regulated and monitored by the Financial Sector Conduct Authority. Download a guideline to understanding your MDD.
You incur initial fees and annual fees:
- There are no initial administration fees for investment amounts of R500 (fund minimum) or more. A 2.30% initial administration fee is levied in the unlikely event that we accept investments of under R500 into our other funds.
- Initial adviser fees may be negotiated with your adviser to a maximum of 0.69% for fixed income funds and 3.45% for asset allocation and equity funds.
- Total Expense Ratio. The costs that comprises the TER include costs that the unit trust management company is unable to quantify upfront as they depend on specific or variable circumstances.
The TER is an annualised value and includes:
- The annual service fee – this will include any performance fees;
- The fund’s bank charges;
- The fund’s audit fees:
- Taxes (e.g. VAT, Securities Transfer Tax);
- Custodian and trustee fees – custodians and trustees are appointed to protect the interests of the unitholders, and the fees pay for their services
- Annual adviser fees, if applicable, agreed upon between the adviser and the client is deducted monthly through the sale of units;
- Brokerage fees – this is a portfolio fee and covers the trading costs incurred when buying and selling securities
If the amount that you are switching is in line with the stipulated fund minimum, there is no management company charge when you switch between unit trusts. If you use an adviser or a broker, you may incur an increase in your initial adviser fee if you are moving from a fixed income fund into an asset allocation or equity fund. This is because the maximum initial adviser fee for fixed income funds is 0.69% and 3.45% for equity and asset allocation funds. Switching may trigger a capital gains event.
The Total Expense Ratio (TER) can be used to calculate how costs impact the value of your investment. Download our Total Expense Ratio document for more information on this new measure and how it works.
Regulation 28 of the Pension Funds Act determines the types of assets a Retirement Fund (Retirement Annuity, Preservation Pension Fund or Preservation Provident Fund) may invest in, and what maximum percentage of the portfolio may be invested in specific asset classes. It was amended in 2011 and again in 2018. New provisions came into effect for individual members from 1 April 2011 and Foreign and Africa limits changed in February 2018. Regulation 28 does not apply to member-owned living annuities or standard unit trust portfolios.
Old Mutual Retirement Annuity Fund, the original fund-owned Living Annuity investments, and the two Preservation Funds are the only Old Mutual Unit Trusts products that are affected by the regulation. The regulation impacts the structure of your portfolio. The regulation sets maximum exposure limits to the asset classes in which you may invest.
- Listed equity - 75%
- Listed property - 25%
- Offshore - 30%
- Africa - 10% (ex SA over and above the allowed 30% offshore exposure)
The IT3a tax certificate issued for transaction year 2020 has led to a few questions. In summary, the information supplied to SARS is correct and in accordance with SARS’ specifications.
The IT3a tax certificate contains a 'Reason code' for non-deduction of employees' tax, and in the case of a nil directive the reason code is '4'. This code is used to indicate to SARS that there is a tax directive attached to your certificate with nil tax applied. As a result, no tax is payable to SARS on assessment. Although reflected on your tax return as income, it should not be included in the assessed value applied by SARS.
In transferring your portfolio from the Old Mutual Unit Trusts’ Retirement Annuity or Preservation Fund/s into the Old Mutual Wealth equivalent Fund/s in August 2019, we needed tax approval from SARS. A transfer from one retirement fund to another is a taxable withdrawal event. The Second Schedule of the Income Tax Act No. 58 of 1962 grants a deduction equivalent to the amount of the transfer, provided the transfer meets certain criteria, thereby resulting in an amount of zero being effectively included in your taxable income.
The description on tax certificates is therefore correct. The IT3a tax certificate contains a 'Reason code' for non-deduction of employees' tax, and in the case of a nil directive the reason code is '4'. This code is used to indicate to SARS that there is a tax directive attached to your certificate with nil tax applied.
The IT3a certificate file submitted to SARS is in accordance with the SARS PAYE Business Requirements Specification document (available on the SARS website), which requires that a field that has a zero value must not be completed unless otherwise specified in the field validation rules, i.e. it must be left blank in the file submitted to SARS. Since the tax on this transfer is zero (per the tax directive), source codes 4102 (PAYE) and 4115 (PAYE on retirement fund benefits) were left blank in the submission file to SARS, and they are blank on your tax certificate in your tax return.
Zero tax is payable to SARS on assessment. Although reflected on your tax return as income, it should not be included in the assessed value applied by SARS. The tax certificates confirm the values which should be applied.
DWT is a tax levied at a flat rate of 20% on all dividends received by an Investor (beneficial owner) from the distributions paid. This is a “withholding tax”, which means that the entity who is paying the dividend (eg. Old Mutual Unit Trusts) must subtract the tax first from the dividend proceeds before paying it to the Investor.
It is important to note that all investors qualify for an exemption from DWT, however this exemption is not automatic and may only be provided once the investor (beneficial owner) provides the declaration confirming where they are resident for tax purposes. The BUY form will guide you to provide this declaration.
As an individual:
- If you are resident for tax purposes in South Africa you should qualify for the para (l) exemption because income declared by a Real Estate Investment Trust (REIT) is deemed a dividend subject to normal income tax in the hands of the South African Tax Resident.
- If you are resident for tax purposes in another country other than South Africa, you may qualify for exemption under para (j), (x) (y) or (z).
- If your Tax Residence status changes during the term of your unit trust investment, it is important that you update your details with Old Mutual Unit Trusts by contacting 0860 234 234.
If the Investor does not provide this declaration, all distributions paid will always be subject to the full DWT tax rate.
Should a foreign company declare a dividend, foreign withholding tax could be incurred on the dividend. If such a foreign tax is incurred and it is not claimable from the foreign tax authority, this foreign tax will be allowed as a rebate (deduction) against any local DWT due to the South African Revenue Service (SARS).
The general principle is that you shouldn’t be. Although local dividend is income, it is subject to dividend tax and not income tax.
Shareholders are liable for both dividend and income tax. DWT is a tax on dividends received by a shareholder, but is a ‘withholding’ tax. This means that the entity (or the regulated intermediary) paying the dividend must withhold the DWT prior to paying the net dividend to the shareholder or paying SARS.