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When to sell Navra Fund

Discussion in 'Managed Funds & Index Funds' started by hiflo, 18th Oct, 2007.

  1. hiflo

    hiflo Well-Known Member

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    I need to withdraw about half my Navra Fund to fund a property purchase in January 2008. I am wondering when it is best time to sell.

    Would it be better to sell in Dec 07 just before the distribution and pay capital gains tax (if applicable, as my average purchase unit price was around $1.15) or wait until the distribution and sell it, hoping that unit prices will jump up dramatically in the space of a month?
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Assuming you have held for more than 12 months (or you have realised capital losses to offset the gains), then selling at the end of December would be the best time to maximise your capital gain and minimise your distributed income.

    Just remember that it can take a couple of weeks to actually get your money, so don't leave it too late ... and if mailing your instructions, make sure you leave enough time before the end of the year for them to receive it and process it - especially with public holidays and such (perhaps check with NI as to the timing).
     
  3. Nigel Ward

    Nigel Ward Team InvestEd

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    Your crystal ball is as good as anyone else's hiflo!

    Seriously though...if you know you need the money by a certain date I'd lock it in sooner rather than chance it.

    You may forgo some small profit but certainty has value.

    Cheers
    N.
     
  4. Here_To_Learn

    Here_To_Learn Well-Known Member

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    As far as withdrawing funds go ... is it possible to only withdraw some of the funds or does one have to sell all units ?

    Example -

    Total value of units funds invested $700K
    Margin Loan value $300K

    If one wanted to withdraw $150K how would it work ? Would I have to instruct Margin Lender what I wanted my LVR to remain at ?

    Sorry to ask such a simple question ... In the 2.5 years I have been in the fund I have never sold any units !
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    That's actually a good question ... can be a bit confusing for people new to margin lending.

    If you sell, the proceeds will be paid into the margin account - you usually don't get a say in this.

    Your current LVR is 300/700 = 42.9%

    If you think of just selling $150K, what will happen is that your fund will drop to $550K, your loan will drop to $150K and your LVR will drop to 27.3%.

    Now if you then take all of that $150K out of the margin loan as cash, you'll end up with fund value of $550K, margin loan of $300K and an LVR of 54.5% !!

    The LVR jumps by a lot if you take that much cash out.

    The trick if you want to maintain the level of your LVR, is that you need to redeem more units to pay down the loan further.

    If you want to keep your 42.9% LVR and take $150K out as cash, you would need to redeem $150K / (1 - 42.9%) = $262,500 worth of units such that your fund value drops to $437,500 and your loan drops to $187,500 with an LVR maintained at 42.9%
     
  6. DaveA

    DaveA Well-Known Member

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    i redeemed some unit this week, and what it says on the comsec form is

    redeem units and repay whole amount to loan
    redeem units and dsitribute cash (where lvr permits)
    redeem and pay the loan the original investment amount, and profits to your bank account.

    So yeah, theres no problems doing a part redeem. As far as i know from a tax perspective the units you sell have the cost base of the first units you have bought (FIFO)
     
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Okay, I've worked out a formula to determine how much you need to sell to get a new LVR of your choice.

    Let's say your investment is worth V and you have a loan of L, you want to withdraw A in cash, and you want your LVR after the transaction to be no more than R, then the amount you need to sell S is:

    S = (A + L - R*V) / (1 - R)

    So in your example, if you wanted to have your new LVR at 50%, then you would need to sell: (150K + 300K - 0.5*700K) / (1 - 0.5) = (100K / 0.5) = $200K, and then withdraw $150K from your loan.

    If you were happy for your LVR to get up to 60%, you would only have to sell (150K + 300K - 0.6*700K) / (1 - 0.6) = (30K / 0.4) = $75K before drawing out the $150K
     
  8. Here_To_Learn

    Here_To_Learn Well-Known Member

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    Sim, thank you so much for explaining this ! You are a genius !

    I will put your formula to the test tonight with current figures. Definitely a little more involved than I originally thought.

    Thanks again.
     
  9. voigtstr

    voigtstr Well-Known Member

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    Sim, the above would be a contender for a web based calculators section on the fund comparison website :)