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Cape Town - Research suggests more than 11 500 000 stokvel members in South Africa have an estimated R49bn in savings.
While traditionally stokvels – typically informal savings vehicles consisting of members’ pooled contributions – have been used for short-term savings such as groceries or school fees, evidence suggests that many stokvels are now becoming more formal, upmarket saving schemes.
“There are two things driving this trend: people who can’t afford monthly investment minimums, yet want to earn long-term return on their savings, are doing so through a stokvel that invests. Secondly, stokvels who have saved up a considerable lump sum decide to invest as a group in order to earn higher returns,” explains Thandi Ngwane, head of strategic markets at Allan Gray.
She says bank accounts are suitable for stokvels with short-term objectives. But once the objectives take a longer-term focus - between three and five years - stokvels should consider looking for alternatives.
“If a stokvel wants to achieve real growth that beats the eroding effect of inflation, the cash that a stokvel puts away each month must grow by at least the inflation rate. For example, if your bank offers you an interest rate of 5%, this may sound attractive. But, if inflation is higher than 5%, your money will be losing value,” says Ngwane.
She says a unit trust is a great option for stokvels that have a long-term savings objective, as the investment management decisions are left to qualified professionals.
“Unit trusts offer an affordable way to invest in a wide variety of investments. You would need a large amount of money to buy the same range of investments yourself. The investment manager decides which companies, stocks or shares to invest in and the unit trust’s returns are based on these underlying investments. There are different types of unit trusts, depending on how long you want to invest, and how much money you want to earn.”
Ngwane's five key reasons to consider unit trusts:
Access to experts
You don’t have to make all the investment decisions on your own. Skilled investment managers will make investment decisions on your behalf.
Your investment is safe
If you have money invested in a unit trust you are invested in a protected fund and not in the financial institution itself, so if anything goes wrong with the investment management company your money is safe from the company’s creditors.
Better long-term returns than having all the money in cash
Unit trusts have the ability to invest your money in different underlying investments, meaning that if one investment isn’t doing well you have the potential to earn return from another.
In addition, if your stokvel is able to remain invested for the length of time that matches the unit trust’s stated mandate, you have a greater opportunity to benefit from compound interest and see better investment returns than if you kept your savings in cash.
You can access your investment if you need to
In the event that a member needs to exit the stokvel, or an emergency payment needs to be made, you would have access to your investment. There are no lengthy notice periods that apply.
Transparent reporting
You can keep track of your investment by accessing your stokvel’s investment statement online, making the reporting process at stokvel meetings more transparent. In addition, information about the unit trust your stokvel is invested in is available on a factsheet, which most investment managers make available via their websites.
This will help you track that the stokvels investment objectives remain in line with those of the unit trust you’re invested in.
She goes on to explain that there are many unit trusts available and stokvels need to consider what future need or project they are investing for and how long they wish to stay invested. This is often a useful guide in determining the type of unit trust that may suit the stokvel’s investment objective.
“If your stokvel is willing to invest for at least five years and the members can stomach risk, then buying an equity-only unit trust is an option. However, if your members don’t have such an appetite for risk, then a balanced or stable unit trust, which can invest in a wide range of underlying investments, may be more suitable,” she says.
To ensure that decisions made by the stokvel are in the best interests of all members, Ngwane suggests adding at least three signatories to any investment account, which can consist of a chairperson, treasurer and secretary.
“If in doubt, you can talk to a good independent financial adviser who can best assist you in finding out whether your stokvel is ready to invest,” concludes Ngwane.
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