The world becomes your oyster from Tuesday – but the pearl remains rather small.
The larger than expected, but still comparatively restricted, R200 000 allowance, which Finance Minister Trevor Manuel announced this week that you can take offshore opens up a whole new world of investment, including 34 000 unit trust funds..
The financial services industry, which has been planning its moves since the Budget in March when Manuel signalled the easing of exchange controls on individuals, sprang into action to offer investors an almost bewildering array of new products.
Over the last week dozens of new “offshore” products were launched by local institutions, some as familiar as your bank, unit trust company and life assurer.
Foreign institutions are also entering the market either in partnership with local corporates or on their own.
To enter the offshore investment market will in most cases cost a significant amount of money – you will not get away with much less than R30 000 for most of these new products.
These products complement the international unit trusts and endowments – “onshore” products – which local institutions have been selling for the past year.
The onshore products are similar to the offshore products in that you invest in a fund, which in turn invests abroad in products offered by foreign investment companies or hires them to run a special fund for this purpose.
The difference is there is no limit on the amount you can invest in onshore products, because it is an investment in rands and when you sell it, you get paid in rands.
For people only able to invest low amounts the local “international” unit trusts and endowment policies will still be the best option, while people who want to invest more than R200 000 offshore will also have to make use of the local products on which there are no limits.
The range of offshore products is unlimited – from bank cheque accounts through to highly specialised unit trusts or even direct investments in the share of your choice in Bangkok or New York.
Don’t be alarmed at the parade of different products. The advice being given is that you should not rush in. Take your time in deciding what investments to make, whether to use local or foreign advisers, when and how much to invest.
Take care about whose advice you follow. Look at the qualifications of your financial adviser and choose someone who has the skills you need.
Compare the costs of investments. With the competitive environment this could make a significant difference to your investment’s performance.
Diversification of your investments should be your primary objective in investing offshore and not superior returns. Currently you could even be worse off investing offshore.
There are tax implications. The government is still considering the issues. In the meantime it is proposing amendments to the Income Tax Act which will tax your foreign investments in the same way as your local investments. These amendments could take effect on Tuesday.