If, like me, you’re relatively new to the investment world, there’s a high chance that you’ve heard the abbreviation ‘ETF’. Not to be confused with an EFT (electronic funds transfer). According to former Satrix CEO Helena Conradie, an ETF “is mostly a unit trust which trades [on a stock exchange].”
Also known by its full name, exchange-traded funds, an ETF is a basket of securities which can be bought or sold on the stock exchange. Speaking to BizNews, etfSA’s Mike Brown echoed Conradie’s sentiments.
“They are a lot like unit trusts in that they facilitate exposure to a basket of shares, so you won’t lose all your money if a company collapses,” he told BizNews.
So what are the benefits of investing in an ETF, especially as a beginner? Well, for starters, there’s significantly less risk involved. They’re considered to be ‘low-risk’ because they are generally cost-effective and hold a number of stocks, which increases your investment diversification. They’re a great place to start investing if you’re just starting out yourself.
What’s more, investing in an ETF allows you to invest in multiple companies through one single purchase. This not only makes it easier to purchase, but to sell too. If you’re investing less than the maximum yearly threshold (R36,000) it can qualify as a Tax-Free Savings Account.
Investing in an ETF is also rather easy and straightforward. Find the platform that works best for you – I personally prefer EasyEquities for its simplicity and ease of use – but there are other alternatives. You can also invest through a broker or a brokerage firm. Find the option that best suits you. By doing it through EasyEquities (or a similar platform) you’ll get experience and manage your own money/investments, essentially. If that is overwhelming, speak to a professional who can assist you and manage your money.
Also important is research. There is a wide variety of ETFs to choose from on the Johannesburg Stock Exchange alone. What’s crucial to remember with ETFs is that – unlike individual stocks – you need to take the ETFs holdings into account. It’s made up of numerous stocks, so narrowing it down to what you want to invest in (in terms of industry or business sector) will help. Obviously, things like your time frame for investing – and what you’re investing for – need to be taken into consideration. Here, an investing expert will be invaluable.
Last week, I asked you to send me your finance and investment queries. Here, Gavin Butchart* of Brenthurst Wealth Management shares expert advice by providing answers to your questions.
Bobby asked,
I read an article recently titled, “How you are taxed on your investments.”
It said, “if you buy a property for R300,000 and after 15 years sell it for R3.5m, then the CGT will be R3.2m. SARS does not take into account inflation when calculating CGT.”
My question is as follows: is the financial sector in SA challenging the above as it would be prudent to take inflation into account?
Gavin’s reply,
It’s a good question and one that has been raised before, when investing into financial products or real estate inflation should be taken into consideration.
Unfortunately for taxpayers, SARS would have also considered taking inflation into account when calculating capital gains tax. One such consideration would be whom would benefit most from such a move and the effects on economic growth, the inclusion may further complicate the taxation of capital gains, whereas at this stage it’s easy to administer and comply with.
If inflation was to be included, we would see individual taxpayers most likely paying less taxes, as inflation decreases an individual’s monetary purchasing power over the years. When taxpayers pay fewer taxes, SARS collects less revenue, which directly affects economic growth and may then see the need to increase other tax revenue sources.
Capital gains tax is mainly aimed at wealthier taxpayers, however statistics show that the revenue collected from CGT has been low compared to revenue collected through income tax, as less wealthier taxpayers don’t fall into this net or realise significant capital gains. Therefore, including inflation would again generally only benefit the wealthier taxpayers, thus defeating SARS objective to ensure equality between individual taxpayers.
The inclusion rate in South Africa is considered low compared to that of other countries (max effective rate 18%), as well as an annual exclusion amount of R40,000 for natural persons is more beneficial to the economy and individuals as opposed to including inflation for CGT which may justify SARS reasons not to include inflation for CGT.
- Gavin Butchart is a tax expert and head of Brenthurst Wealth Management in Mauritius
Have a question about share investing? Write to me at [email protected].
Read more:
- Highlighting the importance of emergency savings – On the Money with Jarryd Neves
- Clawing your way out of debt – On the Money with Jarryd Neves
- How to apply for a home loan – On the Money with Jarryd Neves
