It’s estimated that R9.34bn has found its way via the Section 12J initiative into smaller businesses, while over 10 500 jobs have been created. There are now over 180 12J Venture Capital Companies (VCCs) in South Africa, making it the fastest-growing alternative asset class in the country.
At the heart of this high rate of adoption is the fact that Section 12J is part of South Africa’s Income Tax Act and that it provides investors with an immediate tax deduction equal to 100% of the amount they have invested.
In response to these developments, MeTTa Capital — SA’s first Section 12J Portfolio of Funds provider — was launched in 2017. It acts as an independent aggregator in the Section 12J asset class. MeTTa Capital’s investment committee, chaired by Dr Adrian Saville, compiles and weights diversified portfolios of Section 12J Funds. Their unique offering allows investors a single-entry point access into a portfolio of market leading Section 12J investment strategies, whilst charging no additional fees to the investor for the use of their platform.
This year, MeTTa Capital has launched its High Income Fund, a new offering that reduces the minimum investment requirement to just R350 000. This is MeTTa Capital’s fourth portfolio and it is currently open for investment until 25 February 2021. The Portfolio has been designed to include investment strategies that yield stable and predictable income returns, earned off the back of strong asset underpins.
In the current low-interest rate environment and with a shortage of strong yields being achieved in traditional asset classes (such as listed equities and property), the High Income Fund looks to provide investors with:
- An anticipated Internal Rate of Return (IRR) of 18.62% (net of fees and all tax considerations).
- An average annualised dividend yield of 8%, with dividends paid bi-annually.
- Access to multiple Section 12J funds in key growth sectors (renewable energy, agricultural and infrastructure).
Section 12J investing has now become an important asset class to consider when building a client’s portfolio. Its significant tax and uncorrelation benefits are driving wealth managers to ensure their clients have at least a portion of their assets allocated to this asset class.
Standard Bank Wealth & Investments has been ahead of the curve by running client webinars which educate their clients about Section 12J investing, as well as the importance of having alternative assets within their portfolio mix. MeTTa Capital is proud to call them our partner for two years now, and we again look forward to bringing forth our comprehensive Section 12J investment solution to their clients this month.
Section 12J versus RAs
To understand the benefit that a Section 12J investment can have for an individual, it’s worth looking at how it compares to what currently exists in the market. One interesting comparison is that with the Retirement Annuity (RA) space.
For decades, RAs have had their place in South Africa, especially when it comes to automating monthly savings and providing a cash lump sum upon retirement.
Yet in recent times, RAs have been under the spotlight regarding their performance, with some funds even lagging inflation. And with fears circling around Regulation 28, one has a recipe for further uncertainty.
MeTTa Capital’s Section 12J High Income Fund is a real alternative to RAs, especially when one considers the following key factors.
For starters, RAs have an investment cap of R350 000. With MeTTa Capital’s High Income Fund, the minimum investment is R350 000, but Section 12J allows you to invest up to R2.5m per annum and still receive the full deduction. Furthermore, corporate taxpayers can invest a maximum of R5m and receive dividend returns exempt from dividends tax.
In addition, the exit date for an RA is 55 years of age, while for 12J it is 5 years from the date of investment.
Another advantage that Section 12J has over RAs comes to returns and withdrawals. Returns from the High Income Fund can be taxed either as dividends at 20% or as a capital gain at 18%. Meanwhile, an RA, that is withdrawn outside of a living annuity, is fully taxed at up to 45% when paid out.
MeTTa Capitals’ High Income Fund provides investors with a similar level of diversification that South Africans have become used to with many RA funds, but in faster growing parts of the SA economy. Currently, Section 12J is one of the only mechanisms to access direct renewable energy investments, and our 40% allocation to this sector provides investors with access to the enormous growth that has been seen within this segment of the market.
This year presents investors with an important opportunity to benefit from the risk-adjusted returns that are provided to them through the government's Section 12J incentive. Section 12J investing has never been easier and investors have a one-stop shop in the Metta Capital High Income Fund, which will provide them diversified access into the market’s leading Section 12J investment strategies. DM/BM
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