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Best time to pull out Navra funds

Discussion in 'Managed Funds & Index Funds' started by Leandro, 7th Sep, 2006.

  1. Leandro

    Leandro Well-Known Member

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    Hello All,

    I am looking at purchasing my first PPOR soon if all goes well with the contracts that i am reviewing with our solicitors.

    I wanted some advice on when the best time was to pull out the required funds for the deposit from the Navra fund.

    This is the situation; in the next couple of week i will need to put down a deposit down for the exchange of contracts. I can either pull some Navra funds out at that point which means i will miss out on the distribution but then i won't have to pay tax (30%) on that money and if i remember correctly the unit price will be also higher. Or i can try to get that money together without touching the fund, and then after the distribution cash those funds out to replenish the other sources of income which i have used, which means i have to factor in tax into the equation and the lower unit price i believe.

    Anyone have any advice on which direction is better (i.e. has more knowledge of the unit price movements before and after the distribution), or has done the calculations before.

    Any comments appreciated
     
  2. TryHard

    TryHard Well-Known Member

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    Hi Leandro

    Having been in a similar situation a couple of times and cogitating over the same things :) it probably comes down to your personal situation and at least the variables :

    a) Unit price - what price you bought at versus what they are worth now
    b) Your income and tax situation

    So if you stand to make a big capital gain by redeeming the units now, you've got the CGT issue to deal with.

    If however you wait for the distribution and increase your income, you've got the extra income tax to deal with.

    The market and NavTrade will affect the other results - ie. all other things being equal the unit price post-distribution will be the unit price pre-distribution less the distribution paid. ie. I don't think you can rely on any trends in movement of unit price post-distribution because they're not reliant on anything constant.

    Hmm, that's me trying to sound 'mathematical', or maybe 'maniacal'.

    If you're not going to make much capital gain, and you income is already in the higher bracket, I guess (in my uninformed opinion) you'd take the units out before the distribution.

    Have fun with the PPOR Purchase !
    Cheers
    Carl
     
    Last edited by a moderator: 7th Sep, 2006
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    You end up with the same amount of money (pre tax) either way - so it comes down to your tax position.

    Assuming you have no income losses to offset income against and no capital losses to offset capital gains against, and also assuming you have held the funds for more than 12 months, then the best option I think might be to sell BEFORE the distribution - this way you maximise your capital gain (and minimise your income), and since you get a 50% discount on capital gains - you'll be paying less tax than you would on the post-distribution income. At least that's the theory, anyway.

    Of course, your personal situation might differ, so a different approach might be better. For this type of planning I would really suggest discussing with your tax expert.
     
  4. Leandro

    Leandro Well-Known Member

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    Hey guys,

    Yes i will discuss it with my accountant, just trying to get my head around it before i ask.

    The tricky bit is that i was on the savings plan, had my dividends reinvested and margin loaned the units. So if you are selling part of the units (like i am), i guess you would assume you are selling the oldest sets of units first and then work out if you have held those for over 12 months to work out CGT.

    On top of that, each set is purchased at different unit prices.
     
  5. Nigel Ward

    Nigel Ward Team InvestEd

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    Urghh. sounds messy. The additional cost at tax time for your accountant to work out the CGT implications may mean it's better to source funds from elsewhere! :rolleyes:

    Ultimately it's a case of doing the sums either way, but remember that if you redeem the units and there's a big positive movement in unit price you'll miss it. Conversely if the unit price heads south then you'll also miss it.

    Horses for courses.

    Cheers
    N.
     
  6. Leandro

    Leandro Well-Known Member

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    You can say that again. But i would imagine that this situation is not too uncommon.

    If i wanted to cash out pre distribution time, would i be right in assuming that the unit price keeps climbing until the end of the quarter if a distribution is expected? So i should wait until the last few days.
     
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    There's no guarantee that the unit price will keep climbing, even with a sizable distribution, because the unit price moves with the value of the underlying assets held by the fund - so even if there is heaps of cash to distribute from trading profit, a falling market at the end of the quarter will see the unit price drop regardless of distribution (it will drop again post-distribution).

    However, assuming the market moved exactly sideways (ie no nett gain or loss at the end of day's trade, but still volatility intra-day) until the end of quarter - then yes, the unit price would be expected to increase right up until the end of quarter.
     
  8. Leandro

    Leandro Well-Known Member

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    I guess the best person to talk about the unit price movements would be my navra financial planner, Mark Raymond. He must have been busy today, as i wasn't able to get a hold of him.

    Forgot to mention this earlier, thanks Carl!