Allan Gray is South Africa’s biggest investment management firm, with unit trusts that invest in a variety of African and international enterprises. Account-holders can invest in award-winning unit trusts through the company’s Tax-Free Savings Account. These unit trusts have a history of outperforming the market year after year.
Allan Gray’s tax-free savings account adheres to SARS’s rigorous guidelines for tax-free savings accounts. If the account holder overinvests in the account, fines are imposed. This is due to the fact that a tax-free savings account does not incur taxes and has a strict limit on the amount of money that can be invested in the account.
The Allan Gray TFSA makes no guarantees about the amount of interest that can be earned. Rather, the Allan Gray TFSA puts money in a fund that the account holder selects. Unit trusts have a baseline that they attempt to match or beat year after year.
The Allan Gray TFSA is a flexible savings account that allows account holders to profit from their investments. Before you start your investment into the Allan Gray TFSA, familiarize yourself with the account’s requirements and how it operates. Below is a detailed discussion of the Allan Gray TFSA.
Allan Gray Tax-Free Savings Account Summary
The Allan Gray Tax-Free Savings Account is a TFSA that invests in one of Allan Gray’s four-unit trusts. Contributions to the account start at R1,000.00 per month or R36,000.00 for those who want to contribute a lump sum. The account has a R36,000.00 yearly contribution limit and a R500,000.00 lifetime contribution limit.
Unit trusts that one can invest in include:
- Allan Gray Stable Fund,
- Allan Gray Money Market Fund,
- Allan Gray Balanced Fund, and
- Allan Gray Equity Fund.
The investing goals of each unit trust are determined by the board of trustees. In addition, unit trusts have their own benchmark that they aim to beat year after year.
Returns on the Allan Gray TFSA vary per investor and are heavily determined by the sort of unit trust in which the funds are placed. In a given year, some unit trusts outperform others. Furthermore, some unit trusts to invest in offshore assets while others do not. Therefore, which fund to invest in will be determined by the account holder’s risk appetite.
Unit trust earnings might range from 125.8% to -24.3% in a year. As a result, account holders can lose or gain money in a single year. Longer investments, on the other hand, tend to yield better benefits. For example, since its inception, the Allan Gray Money Market Fund has averaged 7.7% annual returns, surpassing the 5.9% inflation rate.
The Allan Gray TFSA is certainly one of the best in South Africa, as it has consistently provided positive returns to investors over time; nonetheless, financial investment comes with no assurances. As a result, understanding how the account works is critical in ensuring that you receive a reasonable return on your investment. The Allan Gray TFSA is covered in more detail further below.
How the Allan Gray Tax-Free Savings Account Work
On the Allan Gray website, you can apply for the Allan Gray TFSA. One must choose a unit trust to invest in when opening the account. The investment in the unit trusts can be done on a monthly, quarterly, or annual basis.
The annual contribution to the account should not exceed R36,000.00, with a lifetime contribution limit of R500,000.00. If one doesn’t follow SARS regulations, you’ll have to pay a tax penalty of 40% of any amount invested beyond the maximum level for the year or lifetime contributions.
Account-holders at Allan Gray can transfer an existing tax-free savings account to their TFSA. Such transfers, however, must still conform to the yearly and lifetime contributions. The account requires a minimum monthly payment of R1000.00 or a lump sum deposit of R36,000.00.
There are no guarantees with the amount of money invested in the Allan Gray TFSA. Earnings will be solely determined by the performance of the unit trust in which the funds are placed. Since the performance of a unit trust is dependent on market conditions, capital may be at risk.
It is worth noting, however, that since their creation, all Allan Gray unit trusts have outperformed the South African inflation rate. Those that invest over a longer length of time are more likely to receive higher returns.
Advantages of the Allan Gray Tax-Free Savings Account
- There are investment opportunities to choose from. (4 unit trusts),
- Investment vehicles have outperformed the South African inflation rate since their inception.
- Monthly contributions that start at R1000.00 are allowed.
- The money invested in the account is accessible at any time.
- There is no tax on earnings.
- Money in the account can be used for any purpose.
- Investment vehicles available are able to accommodate short-term, medium-term and long term investors.
Disadvantages of the Allan Gray Tax-Free Savings Account
- SARS charges a 40% penalty for investing more than the threshold set forth.
- There are fees associated with the account that can go as high as 1.5% of the investment.
Requirements of the Allan Gray Tax-Free Savings Account
- Be able to make monthly contributions or make a lump sum contribution.
- Have a valid South African ID.
- Proof of residence that is not older than 3 months at the time of application.
The Allan Gray TFSA is an account that is designed to outperform the market, and it has done so for many years. However, how your investment in the account will perform will depend on the unit trust chosen. It’s a good idea to familiarize yourself with the unit trusts available before making an investment into the account so you can pick one that will work for you in the long run.