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Allan Gray endowment review 2022

Published by
Lethabo Ntsoane

For those who pay more than 30% of their income in taxes, an endowment is an excellent investment option. The Allan Gray endowment assists investors in increasing their wealth while lowering their taxable income. This is due to the fact that a contribution to an endowment reduces taxable income by excluding contributions.

Anyone with a source of income or a lump sum to contribute to the Allan Gran endowment can use the endowment as an investment vehicle. The account can also be used to invest in children (those under the age of 18). Minors, on the other hand, have different minimum investment rates than adults.

Withdrawals from an endowment plan are subject to specific restrictions. Money invested in the account, for example, cannot be withdrawn during the first five years of making a deposit. The account also follows the 120 % rule, which specifies that the 5-year withdrawal restriction can be extended if the account holder invests 20% or more than the highest amount invested in the succeeding 2 years. 

The application for the Allan Gray endowment must list the account’s beneficiaries. Beneficiaries are individuals who will profit from an account holder’s death. Beneficiaries will receive the funds when the account holder’s estate is wound up, and there will be no executor’s fees to pay.

The Allan Gray endowment account is a fascinating account with major benefits for both the account holder and beneficiaries. Continue reading to learn more about the Allan Gray Endowment , including how it operates and how much it costs to open an account.

Allan Gray endowment summary

Individuals can save money while lowering their tax liability thanks to the Allan Gray endowment. The account is designed for people who pay more than 30% in income tax. To open the account, a one-time payment of R50,000.00 is required. Alternatively, monthly contributions of at least R1,000.00 can be made into the account.

Those under the age of 18 can open an account with Allan Gray for their endowment. If someone invests on behalf of a minor, Allan Gray demands a minimum lump sum commitment of R20,000.00. Alternatively, you can make a monthly payment of R500.00 to the account.

Withdrawals under the Allan Gray endowment are possible after 5 years of contributions. The 120% rule may apply if a deposit from the preceding year is 20% more than an investment made in one of the next 2 succeeding years. The 120% rule refers to a contribution that is 20% larger than the investment made in either of the previous two years.

The funds in the endowment account will need to be transferred to one or more of the Allan Gray unit trusts. Allan Gray offers the following unit trusts:

Interest that will be earned for the endowment account will be derived from the investments made into the selected unit trusts. Since there are no withdrawals allowed over the first 5 years one can expect to have a marginal gain on their investment since Allan Gray unit trusts tend to outperform the market over time. 

When making an investment, know that the capital is not guaranteed. Capital into the endowment account can be lost, and Allan Gray won’t be liable for such losses incurred. 

How the Allan Gray endowment works

You can apply for the Allan Gray endowment online or over the phone. On the Allan Gray website, you can make a request to open an account or apply for one. Applicants of any age may apply; however, minors must be assisted by adults.

A minimum contribution will be required when the account is opened. Either an R50,000.00 lump sum contribution or an R1,000.00 monthly contribution is required. Those under the age of 18 must deposit at least R20,000.00 into the account or make an R500.00 monthly commitment.

The applicant will have to decide where the funds will be used. The applicant must decide which investments to make, or which Allan Gray unit trusts to invest in. When the money is received, it can be distributed according to the applicant’s requests.

The money will be invested in the unit trusts that the applicant has chosen, and the account will be activated. Interest on investment will be in the form of stock gains and dividends paid will be capitalised because the account has no withdrawals over a certain period.

Withdrawal can then be made after 5 years from the initial payment. Withdrawals at this point will be tax-free. Should the account holder die, the funds in the account will be paid to beneficiaries. Estate duty will apply in this case. 

Advantages of the Allan Gray endowment

  • The account holder will be charged a low tax for the income earned.
  • Contributions to the account can be made on a regular basis.
  • There are no taxes to pay when the 5-year waiting period lapses.
  • The account can be applied for online without the need to visit Allan Gray’s offices.
  • The minimum investment is reasonable for an investment in an endowment.
  • Offshore investments come with a restriction which limits the exposure of the account.
  • An investment can earn interest when invested correctly.

Disadvantages of the Allan Gray endowment

  • The capital invested can be lost.
  • Early withdrawal from the account comes with penalties.
  • There is a chance of withdrawing the amount invested later than 5 years if contributions increase.

Conclusion

The Allan Gray endowment provides an account that can be utilized to reduce tax liability. The account allows account users to avoid paying executors’ fees when they die, allowing them to leave more money to their loved ones. It’s critical to understand an endowment’s withdrawal requirements because they may prolong your withdrawal term. Keep an eye out for any changes to the withdrawal rules.

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Lethabo Ntsoane

Lethabo Ntsoane holds a Bachelors Degree in Accounting from the University of South Africa. He is a Financial Product commentator at Rateweb. He is an expect financial product analyst with years of experience in reviewing products and offering commentary. Lethabo majors in financial news, reviews and financial tips. He can be contacted at lethabo@rateweb.co.za

Published by
Lethabo Ntsoane
Tags: Allan Gray
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