What’s the best return I can get on a R4m investment?

There are plenty of different investment opportunities that can provide good returns. What is important is to pick the investment which best suits your situation and financial goals. You are 67 years old and probably will not need access to these funds anytime soon. Taking your age and goals into consideration, we assume you have a moderate risk appetite.

A few options to take into consideration would be investing in offshore unit trusts, offshore endowments, structured notes, and local unit trusts. Perhaps combine these different investments to avoid putting all your eggs in one basket and achieve a good level of diversification.

As a South African citizen, you are allowed to invest up to R11 million per year offshore. The first R1 million can be taken without a tax clearance from the South African Revenue Service (Sars). But the remaining R10 million requires a tax clearance. If your R4 million is already in an offshore account, you will not have to request clearance and you may directly invest into an offshore investment such as offshore unit trusts or offshore endowments. Having an offshore investment also gives you the opportunity to benefit from a devaluating currency if you bring money back into South Africa. Given the volatility of the rand, offshore investing is a good way to gain exposure to better or more developed markets.

To invest in a diverse portfolio of stocks, real estate, bonds, cash, and other assets, people can pool their funds with those of other investors using unit trusts. Professional fund managers, who use their knowledge to choose investments and manage the portfolio to provide returns for investors, run unit trusts. There are many advantages of an offshore unit trust such as diversification, accessibility, liquidity, and potential returns. Unit trusts are associated with a few risks, too. As with any investment, there is a chance of a loss of principal, and the value of units may change based on how well the fund performs.

Investors should also consider the fees and expenses associated with unit trusts, which can lower returns. You will typically have to pay tax on the profit you made because capital gains are subject to tax. Your maximum tax rate on this gain is 18% (40% inclusion rate times your marginal tax rate). There will be a R40 000 annual exemption during the assessment year.

We advise you to put the money into a different offshore investment like a whisky cask if the capital gains tax from the unit trust is excessive. Whisky casks are a well-liked offshore investment as markets are currently unstable and they yield between 10% and 15% annually.

Another option would be the offshore endowment which is a linked investment plan. These investments are made up of a variety of individual equities as well as offshore unit trusts spanning all asset classes. Unlike regular endowment plans, certain offshore endowment plans allow you to make 100 withdrawals during the restricted period as opposed to only one before maturity. Individuals must pay CGT at a rate of 12% on all realised gains from stock trades, switchovers, and withdrawals. All income (including rent and interest) is subject to a 30% income tax rate for individuals. Individuals are subject to foreign dividend tax at a rate of 20%, net of tax withheld at source.

Any tax calculation, collection, or administration related to CGT, income tax, and foreign dividend tax shall be the responsibility of the service provider. As a result, the investor won’t need to worry about managing their tax administration, and tax is computed in the currency that they are investing in.

Financial entities can issue debt securities like structured notes. Its return is determined by equity indexes, a single stock, a basket of stocks, interest rates, commodities, or foreign exchange rates. A structured note’s performance is correlated with the return on an underlying asset, portfolio of assets, or index.

Structured notes are very flexible and can be created to satisfy your specific risk/return objectives or to provide exposure to a particular asset class or market. We are aware you are looking for the best return. Depending on how you structure it, structured notes may have the potential for higher returns than other income investments, such as bonds.

Another advantage of structured notes is the fact that some offer downside protection to limit your losses. It is important to remember there are certain risks associated with investing in structured notes and you should seek guidance from your financial advisor.

When you do eventually return to South Africa you might want to look at local unit trusts. Apart from the fact that our local unit trusts generally perform quite well, perhaps you may need access to the money at that time. Unit trusts are very liquid because you may buy or sell your units at any time, usually with very little notice. On the contrary, if your money is performing well with the offshore investments, you are not under any obligation to bring it back to South Africa.

After perusing the investment opportunities discussed above, we hope you will find a solution that works for you and your current situation. We do hope the information provided will be beneficial. You are more than welcome to contact us for more financial advice. Wishing you well in your future financial endeavours.