By: Daryll Welsh, Head of Product Development, Investec IMS
Government’s introduction of Tax Free Savings Accounts (TFSAs) provides investors with a great incentive to save. The simplicity of the product makes them particularly appealing for first time investors wanting to enter the savings market. After an initial slow take up, product providers experienced a flood of applications in the weeks leading up to the end of the 2016 tax year. Investec Investment Management Services doubled the number of accounts during the month of February.
Daryll Welsh, Head of Product Development at Investec Investment Management Services (IMS), says that since the launch of their TFSA product it has been encouraging to see that a number of accounts have been opened by parents for the benefit of their children. Almost 20% of the accounts that have been opened on the IMS platform have been for the benefit of minors. By starting to invest at such a young age these accounts allow the process of compounding to work in their favour.
So where is the money being invested? Perhaps unsurprisingly, in light of significant rand weakness approximately 40% of the assets have been invested into global funds. Local Balanced funds, most of which also have up to 25% invested offshore received 30% of the flow while equity funds received 20% of the flow. Property funds received less than 10% of the flow and fixed income funds the remainder. According to Welsh, the split is in line with what many independent financial advisors that support the IMS platform have indicated, namely that investments into the TFSA should be of a long term nature and therefore investors should allocate to the more ‘risky’ asset classes to maximise the capital growth potential. Even though there are in excess of 80 funds to choose from on the IMS TFSA, 10 of the funds accounted for 50% of the assets with the Investec Global Franchise Fund the most popular.
Investments are currently limited to R30 000 per annum and by all indications, with an average account size of R25 000. Many investors have also indicated that they would like to invest in excess of the annual allowance and it is probable that government will in time increase the annual limit.
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