First published in the Daily Maverick 168 weekly newspaper.

Last week DM168 explained why you would use a tax-free savings account (TFSA) and how it works. This week, we take you through some of the TFSAs available to you and their performance over the past three years. 

Shaun Duddy, senior manager in product development at Allan Gray, says current legislation limits the investment options in TFSAs to instruments (unit trusts in the case of Allan Gray) that charge fixed fees. Allan Gray does charge an annual administration fee for its TFSAs. “Our administration fee is charged on the market value across all local platform investments (which include other products or investments held with Allan Gray) linked to the investor number. We charge an annual administration fee (excluding VAT) of a maximum of 0.5% on the first R1.5-million invested, 0.2% on the next R3.5-million and 0.1% on the balance over R5-million. For any investments in Allan Gray unit trusts, we charge a flat annual administration fee of 0.2% excluding VAT.” 

Duddy says investment management fees are charged by the relevant investment managers for investment research and selecting the underlying assets in the unit trusts they manage. These fees will therefore depend on the underlying unit trust selection. 

From 1 September 2020 to 31 August 2021, net flows into the Allan Gray Tax-Free Balanced Fund were just over R179-million. The average net flows per year since the fund’s inception in February 2016 to the end of August this year were just more than R203-million.

Duddy points out that investors can also choose to invest in the Allan Gray Money Market Fund or from a selection of unit trusts from other investment managers.

Sebastian Pillay, portfolio product head at FNB Wealth and Investments, says FNB offers you the option of a tax-free cash deposit or tax-free shares. The minimum investment on the FNB Tax-Free Cash Deposit is R1,000 and you can earn an effective annual interest rate from 3.3% to 3.97%. You can invest in the top 100 companies on the JSE via the Ashburton Top40 and Ashburton MidCap exchange-traded funds.

Marius Pretorius, head of marketing for retail savings and income for Old Mutual, says you have several choices when deciding which underlying assets to invest in, under the Old Mutual Invest Tax Free Plan. “You can elect to invest in a pure interest-bearing account or consider growth assets such as equities. The growth you can expect will depend largely on the type of underlying assets you invest in. Generally, the higher the expected growth, the riskier the investment would be, and the lower the risk, the lower the return,” he cautions. 

If you invest in an underlying fund managed by Old Mutual, then Old Mutual will reduce the admin charge on those funds from 0.75% to 0.5% a year. If you invested the full R36,000 annual allowance in an underlying Old Mutual fund, the admin fee drops further from 0.5% to 0.25% a year (excluding VAT). If you invested the full R36,000 allowance for the year in a fund managed by a different fund manager, Old Mutual will refund a third of the admin charges you paid for that year, so your admin fee would drop from 0.75% to 0.5% for the year.

Liberty’s Stash is also a TFSA. The product allows you to make daily contributions from as little as R5 a day, without the need for a fixed monthly debit order. 

Glenn Grimley, head of Stash at Liberty, says Stash is an endowment policy with two portfolios. The Cash+ portfolio offers a guaranteed investment return of 3.5%. Grimley says the growth rate can change but only after Stash customers are given 31 days’ notice. Second is the SA Top 40 shares portfolio, which provides the performance of the FTSE/JSE Top 40 Total Return Index. Performance as at 31 August was 21.5% over one year and 27.8% over three years. 

“You can choose how to split your contributions between the portfolios directly from the Stash app and you can change the split at any time. You could choose to invest 100% in one portfolio or split your investment between the two portfolios,” he says. 

While you will pay data fees to use the Stash app, the TFSA does not carry any admin fees, investment manager fees, withdrawal fees or trading costs. Since inception in February 2015, Stash has seen inflows of more than R260-million.

Opening a TFSA for your child 

At Allan Gray, accounts for minors are only opened on the instruction of their parents or legal guardians. You will require the following documents: a signed application by the parent/legal guardian; a copy of the ID of the parent who will be acting on behalf of the minor; a signed copy of an “Acting on behalf of the investor” form (from Allan Gray); and a copy of your child’s birth certificate.

Old Mutual requires your child’s birth certificate and an application in your child’s name, which must be signed by the parent or legal guardian. Pretorius points out that where parents or anyone else pays contributions into a child’s TFSA, this will be seen as a donation. All donations exceeding R100,000 for the tax year will be taxed at a rate of 20%. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.