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Preservation fund switch

Mar 16 2011 17:45

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A Fin24 user writes:

When I left my company, I transferred the money I received from it into a Liberty preservation fund. This fund is made up of five different unit trust portfolios. Can I move all these unit trusts into a Satrix fund, as the costs are very high?

Arno Burger, a certified financial planner with the Pretoria-based Fidius Group, responds:

No, a preservation pension fund is not considered discretionary capital and therefore you can't make a direct investment with Satrix – unless you withdraw the funds, which will have tax consequences, and then invest directly in an exchange-traded fund (ETF).

However, it is assumed that your preservation fund with Liberty is in a linked unit trust investment platform (LISP), such as Stanlib. An ETF may be available on the LISP platform and you should be able to move your money to such a fund.

But even though ETF costs are lower, you should consider whether it is necessarily the correct or most beneficial option.

A good understanding of the total expense ratio - a measure of the total cost of a fund to the investor - is imperative for good investment decisions. ETF costs should be compared on this level.

If you consider an ETF "cheap", the fact is that money market exposure, which should also be available on the platform, is cheaper.

Money market exposure usually shows low volatility (but not necessarily low risk, given the long-term objectives of the investor). Exposure to shares – which an ETF will give you – will have high volatility compared to money markets.

The question is which is more likely, after costs, to achieve your objectives over time?

Before you make a decision, you should start with the end in mind, the objective.

If the objective is returns above inflation, to target at least 7% real growth over say 10 years, direct equity (through unit trusts) – where a fee is paid for selective and good stock picking - will probably outperform the Satrix 40.

While money market investments have very low costs, you may be guaranteed that the target will be missed on the south side.

To overcome the risk of not reaching your investment target, an investment strategy should be considered before decisions are made.

Take a look at the broader picture and ask a professional financial planner to assist you.

If the current LISP platform does not provide access to the funds of the investor's choice or for any other reason, the investor may, in terms of Section 14 of the Pension Funds Act, transfer a preservation fund to another preservation fund of choice. Such transfers must be done free of charge.

 - Fin24
investing  |  etfs  |  money


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