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Income Funds

Discussion in 'Managed Funds & Index Funds' started by Here_To_Learn, 27th Jul, 2006.

  1. Here_To_Learn

    Here_To_Learn Well-Known Member

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    Just interested to know what other income funds exist aside from Navra that distribute dividends quarterly ? I have plenty in Navra and looking to diversify just a tad.

    Appreciate any input.
     
  2. MrDarcy

    MrDarcy Well-Known Member

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    CFS Geared share fund and Macquarie property income fund pay quarterly. Only had both a few months so can't comment other than past performance looks good and most income still gets paid in June.
     
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Is the CFS Geared Share Fund an "income" fund ?
     
  4. MrDarcy

    MrDarcy Well-Known Member

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    It should pay me 4 times a year, same as Navra.
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I'm don't think that's really what we mean by "income fund" ... but I guess if it pays you regularly, it's all kind of the same - the difference is mostly a tax issue.
     
  6. pudsa

    pudsa Well-Known Member

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    Income Fund Ques

    Hi Sim, could you elaborate on income funds then. My understanding of an income fund is that it earns income through business activities e.g. share trading and then distributes this income to the unit holders. To avoid tax on the earnings the Fund distributes all income and the unit holders pay tax on their distribution. Don't the CFS Geared Fund or Macquarie Property Fund do the same with earned income which may be from property transactions, rent etc as opposed to say share trading.
    Cheers
    Pudsa
     
  7. Ol School Skata

    Ol School Skata Well-Known Member

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    Isn't the CFS Geared Share fund focussed on growth rather than providing an investor a regular income?

    Not sure i would classify this as in income fund

    OSS
     
  8. MrDarcy

    MrDarcy Well-Known Member

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    I don't know what the official definition of an income fund is, but I selected CFS GSF for its large distributed income - 31% last year, and good growth too. However, not without some risk.
     

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  9. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    MrDarcy - that's not actually distributed "income" - have you seen a breakdown of the nature of that distribution ? Most of it is realised capital gains I think you'll find.

    For the most part that's not a problem - but if you are holding negatively geared property in a structure and you are expecting to use "income" to offset those losses, then you might find yourself with a bit of a tax problem given you have to distribute the capital gains to beneficiaries separately to income.

    That's the only reason I'm making a bit of an issue about the definition of "income".
     
  10. MrDarcy

    MrDarcy Well-Known Member

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    Sim,

    And isn't a large chuck of the Navra "income" also distributed capital gains ??

    Income is what is paid into your bank account, it is returns that have been cystalised and can't be lost. Unrealised capital gains (growth) are not income.

    What Navra paid me last week is the same "income" that CFS paid me, with the exemption that most of the income from CFS has the advantage of 50% CGT discount as most "income" was derived from sale of assets. Navra "income" is the same - the sale of assets but usually has less discounted taxable due less holding time being more actively traded.

    For me, June distribution was 16%is pq for CFS and 5%ish pq for Navra.

    Income. Cash in the bank.

    Sure, CFS main strategory is not to pay much each quarter but is to obtain growth (ie unrealised capital gains), but it still pays income (at least I hope it does as future growth is a bit iffy.)

    I did actually research the fund and how it returned before investing, as I trust anyone reading here will also do.
     
  11. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    No - a very small part of the distributed income is capital gains ... I don't have my 05/06 statement with me - but it was a very small percentage of the overall distribution. This is because Navra is an active trader and the ATO treats their realised capital gains as income, not capital gains.

    Completely correct - but I'm referring specifically to the tax treatment of the distributions, where you need to be careful what is "income" and what is "capital gain".

    Note quite true - Navra "income" is real income - it is converted to (tax) "income" rather than (tax) capital gains.

    But you are also correct that the 50% CGT discount is beneficial in some circumstances - but I'm just trying to caution that there are some circumstances where is it not beneficial.

    As a semantic issue, I would prefer to use the terminology of cash you get quarterly from your funds as "distributions" ... becasue those distributions are made up of a combination of "income" and "capital gains".
     
  12. Here_To_Learn

    Here_To_Learn Well-Known Member

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    Excellent replies !

    I will take a look at CFS. Any other funds paying dividents on a quarterly basis ?

    Thanks 1
     
  13. Here_To_Learn

    Here_To_Learn Well-Known Member

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    I tried to find the CFS Geared Share fund pointed out above on the CFS site but not having much luck.

    Can someone pls help me by send me URL to fund ?

    Thanks a million.
     
  14. gqsydney

    gqsydney New Member

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    Other income type funds

    Hi

    If are looking at income funds then try looking at traditional investments that pay high income such as mortgage funds and property funds including listed and unlisted property trusts. Property can be a little riskier than mortgage funds however if it is well diversified then it can be very stable and its not uncommon for property trust to pay around 8-12% p.a income paid quarterly and some times with tax advantages.

    I would suggest seeking financial advice when it comes to getting the right kind of income strategy in place.

    All the best
     
  15. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Colonial First State Geared Share Fund

    (this link does not represent an endorsement of the fund, nor advice that you should invest in it :D )
     
  16. TryHard

    TryHard Well-Known Member

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    Hey guys

    I ask this from complete naivety more than anything :)

    If I'm comparing the returns and performance of the NI fund to something like the CFS Geared Share Fund, to be an 'apples with apples' comparison I'd have to assume I was geared into Navra Invest too wouldn't I ? (I'm not, yet) ...

    ie. if Navra return is 19.33 % last year, its return as a geared fund would have been ( 19.33% plus (19.33% of borrowed funds minus interest costs on borrowed funds) ) ?

    Meaning its comparative performance to a geared fund would be more like 31% p.a. ? (ie. 19.33 % plus a balance of say 11.5 % on the borrowed funds once interest expenses etc are deducted.

    Or do I misunderstand completely ? ;-)

    I am keen to look at other income funds too (quite over-exposed to NI) but are there any other ungeared options that share as 'conservative' approach as NI ?

    Cheers
    Carl
     
  17. Leandro

    Leandro Well-Known Member

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    Hey Carl,

    I too would be interested in the answer to this question. :)
     
  18. MrDarcy

    MrDarcy Well-Known Member

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    Sounds good to me, but remember that you can also margin the CFS fund yourself and get a much higher effective gearing ratio.

    And there is more, if you borrowed the initial contribution for the fund, then that is a lot of dollars working for you (or loosing for you too :eek: ).

    For example

    Borrow $100k from your LOC
    Margin loan another $100k
    CFS gears at 50% so there is another $100k

    that's $300k working for you for just the cost of the interest, and risk.

    The same investment in NI would have $200k working for you, but I think that the NI has somewhat less risk with or without the extra gearing.
     
  19. TryHard

    TryHard Well-Known Member

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    Thanks Mr Darcy

    Makes sense. The more I read the more I like the way NI does things. The fact the returns are good while the risk involved is (in comparison) reasonably low, suits a nancy-boy like me :) Although I am sure this comes at the expense of some lost opportunities.

    The bit that worries me is having all my eggs in one basket, as the only real exposure to equities I have is all Navra-related. But I suppose I've been to a few Navra seminars, and spent time on the forums etc trying to understand NI better, and if I did the same for some of the other funds I'd feel equally as comfortable with them.

    Thanks for explaining that one ! Now I am going to start wrestling with the concept of gearing into one or more funds and my ability or otherwise to cover margin calls etc. :)

    Fun!
     
  20. MrDarcy

    MrDarcy Well-Known Member

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    Ditto, in NI I feel safe and warm and the returns meet my needs, but have gone to some other Australian funds mainly to get more egg baskets. I found no other "income funds" (using Sim's definition) that get the returns NI does, so a fund like CGF was selected for reasons mentioned before.

    NI is quite a safe fund, but it also doesn't get enough exposure to the safe blue chips. For example, we just missed out on some rather nice gains from Coles, but I'm sure the reason that company was not in the fund was a good, safe reason that I'll never know.

    So going to other funds gets diversification with other managers and in other shares.