What is an Endowment Fund?

Finance can sometimes be a confusing thing with terms like tax free, endowment funds, RA, Unit Trusts and more. All this jargon can seem difficult to catch onto and understand. At Once A Week Blog, it is our mission to try and provide as much information as possible to make the world of finances seem less daunting and more achievable.

In this post, we are going to look at Endowment’s, what they are, who should look at them, what the benefits are.

What is an Endowment?

An endowment fund is a tax-efficient investment fund that allows individuals to save on tax for investments with a horizon of at least five years. So if you are planning to invest for longer than five years, listen up!

An endowment is a type of investment policy that allows you to save on tax. The policy manager will deduct the tax and pay it to SARS on your behalf making life easier for you. The tax rate is also lower with 30% on income earned in the fund. This can be a huge saving if your tax rate is higher than 30%.

While this may sound all well and good there are some things to note. There is a limit on the amount you can withdraw and deposit during the investment period and you need to commit to a period of five years.

What are the benefits of an Endowment?

There are a few key benefits of an endowment according to our research:

  • Lower Tax Rate capped at 30%
  • You can nominate a beneficiary who will receive the proceeds in the event of your death.
  • Can assist you in growing your long-term investments.

Who is an Endowment for?

While anyone can get an endowment fund, it is aimed at individuals with a tax rate of 30% or higher according to a piece we found on Allan Gray. So if you fall into this bracket it would be wise to speak to a licensed advisor to see if it fits your goals.

Within an endowment, you can pick certain funds that suit your risk and investment goals. Everything from balanced funds to equity funds and even Money Market Funds.

Who offers Endowment funds?

Many of the top asset managers offer endowment funds. On a quick Google Search we found the following companies that offered endowment funds:

  • Allan GrayAllan Gray has four endowment funds to choose from.
  • CoronationCoronation’s online system makes investing in endowments easy and straightforward.
  • Discovery – Discovery has a number of funds on offer.
  • Ashburton Investments – Ashburton funds have no initial or annual fees according to their website.
  • Investec – Investec has a wide range of funds to choose from.
  • Fairtree Invest – Fairtree offers a number of portfolio options for its endowment clients.

The world of investing can seem complicated, confusing and overwhelming. While jargon is often used, the world is not as confusing as it may seem. We hope you now have a better understanding of endowments and are ready to speak to the professionals.