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Coronation endowment plan review 2022

Published by
Lethabo Ntsoane

The Coronation endowment plan benefits investors by giving them a plan that provides tax savings and an investment opportunity. Investors can grow their money in the Coronation endowment plan as soon as they deposit it. Money invested can be invested into one or more of the Coronation unit trusts. 

Unit trusts include those that have local assets and international assets. It is advantageous to first learn about the Coronation unit trusts before investing in them. Having a clear understanding of each unit trust can help understand the direction that a unit trust is likely to take. 

The Coronation endowment plan is a good plan to have, especially for those that have a high tax obligation. Funds invested in the plan come with tax benefits, and one can make tax deductions each year when they make contributions to the plan. 

 An Endowment plan from Coronation comes with strict conditions that have to be followed. Failure to follow the conditions will result in tax penalties, which will cause the investment to lose value. Knowing the restrictions that come with the Coronation endowment plan is crucial to the account’s growth. 

The Coronation endowment can be used by anyone, and opening the plan is easy. However, as you are about to open the plan, first understand what the plan entails and how it works. All the details that apply to the Coronation endowment plan are discussed in greater detail below. 

Coronation endowment plan summary

The Coronation endowment plan is an investment plan that provides tax benefits to investors. To get started with the Coronation endowment plan, an investment of R500.00 or more per month will have to be made. One can make a minimum lump-sum contribution of R10,000.00 to get started. Alternatively, a minimum ad hoc payment of R5,000.00 can be made to the account from time to time.

The money deposited into the Coronation endowment plan will have to be invested into Coronation unit trusts. Investors have 22 unit trusts to choose from when making an investment. However, for the purpose of an endowment plan, Coronation has shortlisted the following unit trusts to invest in:

  • Coronation strategic income fund,
  • Coronation balanced defensive fund,
  • Coronation Capital Plus Fund
  • Coronation balanced plus fund, and
  • Coronation top 20 fund.

Consideration of the unit trust is strictly based on the type of investment required for an endowment plan. An endowment plan comes with a minimum investment period. A minimum investment period of 5 years applies to the Coronation endowment plan. In 5 years, the proceeds from the investment, including the capital, can be withdrawn. 

Contributions to the Coronation endowment plan must not be 20% more than the contributions of one of the two preceding years. Should the contributions be more than 120% of the value of the investment of one of the two preceding years, a new additional 5-year waiting period will take place. 

The Coronation endowment plan allows the investor to make 1 withdrawal from the plan within the 5-year restriction. If another 5 years are added because of the 120% rule, then 1 withdrawal will be added to the period. 

How the Coronation endowment plan works

The Coronation endowment plan is suitable for those that pay income tax at a marginal rate of more than 30% per year. However, investors must be those that are comfortable in investing for a period of over 5 years. The plan requires an application to be placed to activate the plan. 

To get started with the Coronation endowment plan, one can apply for the plan using the Coronation website or by applying over the phone. When making an application, the applicant will be required to select unit trusts to invest the funds in. The investor can choose one or more of the Coronation unit trusts to invest in. 

A deposit can then be made after successfully opening the account. A deposit can be a lump sum payment, a monthly recurring payment, or an ad hoc payment. Contributions to the account must follow the 120% rules, otherwise, a new 5-year period will always start if the contributions fail the 120% rule. 

The funds invested in the Coronation endowment plan will be accessed in 5 years’ time after making an initial deposit. Funds withdrawn can be used to make any type of purchase by the investor and come at no restriction.

 More cash injections can be made into the plan after 5 years or earlier, but this will add 5 more years if the funds are 20% more than the contributions made in 1 of the last 2 years. 

The interest that is made through the Coronation endowment fund will be based on the investments made in the unit trust. Therefore, one’s capital is not safe and can be lost. However, Coronation unit trusts have so far managed to outperform the market, which is a plan. 

Advantages of the Coronation endowment fund

  • One cannot borrow from the money invested.
  • There are a number of units of trust to invest in.
  • Unit trusts recommended by Coronation best fit the type of investment.
  • There are different methods of making contributions to the account.
  • Monthly contributions are low when compared to contributions required by other endowment funds in South Africa.
  • Beneficiaries can be listed so that they can benefit should the investor die.
  • It provides a better alternative than paying more taxes.

Disadvantages of the Coronation endowment fund

  • Capital invested can be lost due to market performance.
  • The funds can be ceded as collateral.

Conclusion

Coronation endowment plans can be used to earn interest on investments while taking advantage of the tax benefits that come with the investment in the product. While investing in the product, it is necessary to understand how the 120% rule applies and how you can avoid it if necessary. This will help with accessing cash when you need it most. 

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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: Coronation
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