A Fin24 users wants to know why she is not seeing additional units or dividends from her Satrix Rafi investment. She writes:
Please can you explain exactly how Satrix Rafi works. Their rules say they automatically reinvest the dividends.
This sounds like a good idea, however I am not receiving additional units but I am not receiving my dividends either, although I am paying the dividend tax.
Where is the reinvestment and what is the benefit to me? At the moment it seems that I am better off leaving my money in the bank. At least I receive the interest.
Please help
Brett Landman of Satrix.co.za responds:
The investment objective of the Satrix Rafi ETF is to track, as closely as possible, the performance of the total return version of the FTSE/JSE Rafi 40 Index.
A total return index assumes that any cash distributions, such as dividends, are reinvested back into the index. Accordingly, for the Satrix Rafi ETF to track the index over which it has been established the distributions paid to the Satrix Rafi shareholders must be reinvested back into the Satrix Rafi portfolio.
It is a requirement that the Satrix Rafi physically makes distributions (on a monthly basis, which distributions comprises all of the dividends and other income received by the portfolio over the preceding month) to its shareholders in order for the necessary dividends withholding tax to be deducted by the applicable intermediary and paid over to SARS.
Immediately after the distribution has been paid (and any DWT deducted) the balance of the distribution, net of DWT, is returned to Satrix by the applicable intermediary (on behalf of the Satrix shareholder) and is reinvested back into the Satrix Rafi portfolio.
Satrix utilises the funds reinvested to acquire further constituent securities held by the Satrix Rafi portfolio. As a result the net asset value of the Satrix Rafi portfolio increases by the amount of the reinvestment and the net asset value of the individual Satrix Rafi securities therefore also increases.
Given the aforesaid, the reinvestment of the distribution does not result in an increase in the number of Satrix Rafi securities in issue (and held by the respective Satrix Rafi shareholders).
The benefit of the reinvestment of the distributions is compounded long term growth because the investor is deriving potential growth or return from both the capital amount invested and the income derived therefrom which is reinvested.
So, in a nutshell, reinvestment or distribution (net of DWT) increases the net asset value (NAV) of the Satrix Rafi units held by the client (additional units are not created).
- Fin24
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Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.
Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.
Please can you explain exactly how Satrix Rafi works. Their rules say they automatically reinvest the dividends.
This sounds like a good idea, however I am not receiving additional units but I am not receiving my dividends either, although I am paying the dividend tax.
Where is the reinvestment and what is the benefit to me? At the moment it seems that I am better off leaving my money in the bank. At least I receive the interest.
Please help
Brett Landman of Satrix.co.za responds:
The investment objective of the Satrix Rafi ETF is to track, as closely as possible, the performance of the total return version of the FTSE/JSE Rafi 40 Index.
A total return index assumes that any cash distributions, such as dividends, are reinvested back into the index. Accordingly, for the Satrix Rafi ETF to track the index over which it has been established the distributions paid to the Satrix Rafi shareholders must be reinvested back into the Satrix Rafi portfolio.
It is a requirement that the Satrix Rafi physically makes distributions (on a monthly basis, which distributions comprises all of the dividends and other income received by the portfolio over the preceding month) to its shareholders in order for the necessary dividends withholding tax to be deducted by the applicable intermediary and paid over to SARS.
Immediately after the distribution has been paid (and any DWT deducted) the balance of the distribution, net of DWT, is returned to Satrix by the applicable intermediary (on behalf of the Satrix shareholder) and is reinvested back into the Satrix Rafi portfolio.
Satrix utilises the funds reinvested to acquire further constituent securities held by the Satrix Rafi portfolio. As a result the net asset value of the Satrix Rafi portfolio increases by the amount of the reinvestment and the net asset value of the individual Satrix Rafi securities therefore also increases.
Given the aforesaid, the reinvestment of the distribution does not result in an increase in the number of Satrix Rafi securities in issue (and held by the respective Satrix Rafi shareholders).
The benefit of the reinvestment of the distributions is compounded long term growth because the investor is deriving potential growth or return from both the capital amount invested and the income derived therefrom which is reinvested.
So, in a nutshell, reinvestment or distribution (net of DWT) increases the net asset value (NAV) of the Satrix Rafi units held by the client (additional units are not created).
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.
Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.