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Investing in Navra Fund

Discussion in 'Managed Funds & Index Funds' started by Here_To_Learn, 8th Jan, 2007.

  1. Here_To_Learn

    Here_To_Learn Well-Known Member

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    For those who invest in any of the Navra funds and choose not to re-invest dividends directly ...

    When is the best time to purchase additional units ?

    #1) Shortly after dividend payment ( lower price per unit however no income until next quarter :( )

    #2) Middle of a quarter ( park available funds in offset account to save on interest ) :)

    #3) Prior to end of quarter ( higher price per unit and immediate receipt of dividend payment ) ;)

    Appreciate others thoughts ...
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I think it mostly comes down to your own personal situation and preferences.

    In general, I'd say the best time to invest is usually "now", regardless of what part of the quarter we are in.

    Some things to consider though:

    Investing near the end of the quarter means you get a distribution sooner, but at the cost of a drop in your capital value. Essentially, you are converting your capital to income, and you will need to pay tax on that income at the EOFY. This can be a good thing if, for some reason, you would like to show a higher income on your tax return, or perhaps if you have accumulated losses you can offset the income against. However, in most circumstances, you will be worse off from an after-tax point of view in doing this. You may get a slight longer term benefit through a higher cost price, meaning (very) slightly less CGT when you sell.

    Be warned - if you really don't like seeing your holding value at less than your cost (which it will be in the new quarter after the unit price drops post-distribution) ... then avoid investing towards the EOQ! It's mostly just psychological ... you haven't lost money (ignoring tax), you've just converted some of that capital to income, and if you reinvest that income, your total value should be roughly the same as what you originally invested (in theory).

    Investing at the beginning of the quarter, once the unit price has dropped, means that you are buying more cheaply - you get more units for your money, which should increase your wealth long term (especially compared to NOT reinvesting distributions into more units). You have to wait longer for a distribution, but you were only going to be converting your capital into income for that distribution anyway - so there's no real difference. You will have a slightly lower cost base, so potentially more CGT when you sell, but if you hold long term, that difference will be fairly trivial, and the 50% CGT discount for holding more than 12 months would put you in a better position anyway.

    Mid-quarter basically gives you a cross between the two situations. You are (usually) paying a higher unit price, which will be returned to you by way of distributions at the EOQ, and gain a slightly higher cost-base.

    My suggestion is that the difference between investing just before or just after a distribution is relatively negligible over the long term, and you will potentially see a much bigger gain by investing sooner rather than later (assuming the fund continues to generate profits). One might argue that if the fund is generating 10%+ returns per year, then you stand to lose that much (pro-rata) by waiting.

    Of course, arguments about timing the market may sway your decision either way ... but ignoring that, I still say the best time to invest is now (whenever "now" is!).
     
    Last edited: 9th Jan, 2007
  3. MrDarcy

    MrDarcy Well-Known Member

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    That's the best answer :)

    For me, it's also a bit of timing, just the same as buying a property or shares, buy where there is value. I ignore the distribution and have bought just before and just after distribution.

    For example, the market has dropped over 2% in the last few weeks, making it better value than before. I'm am now more likely to buy NI units than a few weeks ago as the underling shares have dropped in value. Not that I will, it is not quite cheap enough yet for me. As I onced described before, dollar cost trading of a dollar cost fund.

    Yes, this is trying to time the market, and I don't get it right that often. But as I don't have to buy today, I wait until the I see the better value than before. Of course, don't wait too long and never buy at all :cool:
     
  4. hiflo

    hiflo Well-Known Member

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    I am buying into the units "now" too even though I am only a tiny investor. (Only investing in increments of $500-$3000 increments at a time, using margin lending)

    I tend to buy into the fund when it is below $1.10 in the first month of a quarter and below $1.12 in the second month of a quarter don't buy it towards end of a quarter.
     
  5. Here_To_Learn

    Here_To_Learn Well-Known Member

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    The challenge is with timing. By the time you post your cheque to your margin lender and the paperwork is processed on the Navra end how are you assured you are buying at the price you think you are ? :confused:
     
  6. Glebe

    Glebe Well-Known Member

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    You're not assured. You have to allow for a few days lag.
     
  7. Here_To_Learn

    Here_To_Learn Well-Known Member

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    Sim & Mr Darcy - thank you so much for your replies.

    I am just waiting now for my bank to revalue my IP's to draw down some additional equity ! ;)