Need to know more about fixed rate bonds?
Do terms like fixed bonds, investment maturity, interest rate terms make you dizzy? Financial jargon can be tricky to understand.
Fixed Rate Guaranteed Bonds :
CLIENT PROFILE
Fixed Bonds are aimed at conservative clients who are looking for a guaranteed investment return whilst not exposing their capital to market risk. Important to note: Fixed Bonds are not suited for clients looking for liquidity options during the investment term or for those who are looking for exposure to growth in the market.
FEATURES INVESTMENT MATURITY TERM
The Fixed Bond is available for a 5-year term. Once it reaches maturity, the proceeds will be invested in the Money Market Fund until such time that you provide us with further instruction regarding your investment. The minimum investment amount is R 750,000.00
WITHDRAWAL OPTIONS
Since the Fixed Bond is available within the Life Wrapped Investment, two withdrawals (one zero interest loan and one disinvestment) are allowed during the first 5 years.
BENEFITS SECURITY
The capital invested, as well as the growth return, is guaranteed by the institution chosen. Any guarantee is only as strong as the provider of the guarantee.
THE FIXED BOND GUARANTEE:
While there are other products available on the market that claim guaranteed returns over fixed terms, it should be noted that many products (such as linked endowments), while quoting a maturity value, are most likely to be subject to the performance of the underlying assets invested with one or more other parties. Unlike Fixed Bonds with linked guarantees that are guaranteed by external Life Companies, the Fixed Bond is managed only by institutions who give an in-house guarantee, thus reducing the number of parties involved and that are at risk.
PRE-QUANTIFIED OUTCOME
Knowing exactly what the investment will deliver at a specific time means that clients can include these types of secure and guaranteed investment solutions as part of their financial strategy to ensure that they achieve their goals with absolute certainty.
TAX-EFFICIENT RETURNS
Fixed Bonds may provide a tax-efficient return as the guaranteed rate is net of tax and maturity proceeds are not taxable in the hands of investors. Fixed Bonds come with all the potential tax advantages of investing via the platform – the guaranteed maturity value is not taxable and the guaranteed returns are quoted after deduction of tax. This means that the quoted investment values are not diluted in any way by taxation – you get exactly what you see.
Also, with the Fixed Bond, no income adds to the taxpayers income thus not having the effect of increasing the overall taxation rate even possibly to a higher tax bracket, as with Interest income.
INTEREST RATE HEDGE – VERY NB
The outcome of a Fixed Bond investment will not vary, irrespective of the market performance and conditions. Where interest rates could decline by more than what the market anticipates at the time of investment, this particular vehicle is ideal in protecting clients from potentially adverse market conditions.
FEES & COMMISSIONS :
Once you have been given a formal written quotation with a guaranteed maturity value, you do not
pay any additional costs and the full maturity value is paid to you and or re-invested as you choose.
Market related comparison :
| Mr & Mrs A aged 67 * Mr & Mrs B age 67 * |
| *They are worried about the share market. * Are also worried about the market |
| Mr A Invests R3 million into the Money market Mr B invests R3 million in a Fixed Bond. |
| Their current tax rate is at 26% Their current tax rate is 26% |
They receive 9% ## interest for the year = R 270,000 # They receive 6,8 % tax free growth pa.
Their taxable income is increased by R 270,000 less Their tax rate stays at 26 %
exemption of R 34,500 = R 235,500. which takes them After five years they receive the lump-sum
into a higher tax bracket ( 2023 tax rates )
After tax this equates to a return of 6,3 % …
BUT due to the higher tax bracket on gross income of
R 920,000 they paid additional tax of R 90,000
Over five years additional taxation of R 450,000.
Note: Both Money market & Fixed Bonds are guaranteed by similar large organisations
If the Guaranteed option is followed as some are linked.
Also, this type of investing should be handled by a qualified, independent consultant, where
your family Estate, Wills and Life File is correctly set up. This is usually provided without charge.
Courtesy Mr Terry Emmott Cfp ® on terrye@prismeb.co.za Mobile : 0825661647
E & OE ref Fixed Rate Bonds
