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Navra fund - is it a tax effective fund

Discussion in 'Managed Funds & Index Funds' started by dkmc, 12th Oct, 2005.

  1. dkmc

    dkmc Well-Known Member

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    If you are trading huge volumes, buying and selling, then I gather the distributed income is made mostly of distributed capital gains which are passed on to the individual.

    Funnily enough I didnt see many distributed capital gains on 04-05 tax information for navra.
    If one is on a 30% tax bracket then the returns look quite poor, esp as some of you are using it for capital growth.

    Im concerned that some people have stated they have 50-80% or even 100% of their share portfolio into this fund, and expect growth thru reinvesting dividends. Just seems very inefficienct, compared to say some value funds/ indexes.
     
  2. MrDarcy

    MrDarcy Well-Known Member

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    The lack of CG tax advantages, while nice to have, is not an issue for my investing in Navra. My CG come from long term holding of property which will receive the CGT discounts, maybe better than the average share fund. A fund that gives me cash, now, helps service these properties. For others who may not want to invest in property, then Navra offers what most share funds cannot do - regular high income.

    Also, CG in shares comes and goes. Navra traps some of those gains and they cannot be lost.

    Tax structure is important, but not as important as good safe returns. An income fund is just part of structured investing. I'm happy to make the money and pay a little tax than not make money. Also, it's not that hard to reduce ones tax bracket below 30%, even for PAYE like me.
     
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Actually - given that NavraInvest are professional share traders, their capital gains are actually treated as income ... it is this income that is distributed at the end of each quarter. There may be small amounts of capital gain included in the distributions (and I haven't yet worked out exactly what circumstances cause that to happen !)

    I'm not sure I follow you here ? If one is on a 30% tax bracket, then you pay less tax then someone who is on a 47% tax bracket, so your returns are better ?

    Depending on your circumstances, the funds can be considered tax inefficient given that they distribute income, which must be declared in your tax returns each year, regardless of whether you reinvest those distributions or not. Hence, someone on a 47% tax bracket will only get to keep 51.5% (after tax and medicare levy) of their distributions. However, if efficiently structured, this can be reduced or minimised to become a non-issue.

    Personally, I hold my units through my family trust, which also holds my highly geared property portfolio. The losses I incur from the property cannot be distributed or used to offset any other personal income I have, so that's not very tax effective, but the income from the Navra funds is used to offset those costs, and any extra is then distributed to the lowest income earner in the family (another benefit of discretionary trusts). As a result, the taxable nature of the distributions does not concern me at all.

    What's more - there's another benefit that many people don't realise.

    With a normal fund that relies on captial growth (perhaps with a little bit of income distributed), when you sell, you pay capital gains tax on the growth you've achieved - and if held personally or through a trust you also get the 50% CGT discount.

    With the Navra funds, given the primary source of profit is from income which is distributed each month (causing the value of the fund to drop), the actual capital growth of your investment in the fund (regardless of whether you reinvest or not), is significantly less than what you would see from a growth fund. This means that you pay significantly less CGT when you sell.

    So, while the Navra funds might be less tax efficient up-front for some people, there is a not-so-obvious benefit of lower CGT when you sell as well. I'm not saying this makes the Navra funds better for everyone in every situation from a tax point of view, but it does even the score a little.

    If you own your Navra funds in your personal name and you are in the top tax bracket, you're going to be losing nearly half your profits from the fund every year. I would suggest that some good structuring advice is in order to help you get the most from your investments.
     
  4. Steve Navra

    Steve Navra Well-Known Member

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    Hi Sim'

    Thanks I couldn't have said this any better . . .

    It is all about the STRUCTURE . . . and please keep in mind that the income nature of the share funds was created to best match the structure that NFS clients employ:

    Property for maximum CG and for maximum deductibility.

    Shares for maximum income . . . To fund the holding costs of the rest of the portfolio and offset by the deductions from the property portfolio.

    Maximus Cashflus . . . cashflow rules your lifestyle :)

    Investment Property is rarely traded so the CGT is manageable. Shares on the other hand, being a flexible and liquid asset, are often sold and would thus accrue much CGT.

    It is easy to minimise and offset income . . . not so easily done with CG.

    Regards,
    Steve
     
  5. dkmc

    dkmc Well-Known Member

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    Thanks for the replys
    Much appreciated
    Now I understand why a bit better.
     
  6. Glebe

    Glebe Well-Known Member

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    I don't own any negatively geared property, so the Navrainvest is pretty ineffecient for me. However given that I only intend being in the market for two or three years (until I can afford my desired PPOR in cash) the sleep at night factor of locked in gains works well for me.

    I have funds like Platinum which I look to for capital gains.