Is this the best alternative to retirement annuities?

Jaltech Fund Managers has introduced the first Section 12J investment which has a compelling proposition to taxpayers to reconsider whether they should be contributing to, or topping up, their retirement annuities (RAs) before the end of February.

Similar to a retirement annuity, Section 12J investments are 100% deductible against a taxpayer’s taxable income. However, unlike a retirement annuity, taxpayers are not compelled to remain invested until the age of 55 and are not limited to contributing R350 000 per year. 

Jaltech Fund Managers’ Infinity Anchor Fund, through its Stable investment option, offers taxpayers a Section 12J investment which invests in businesses that are asset-backed and have been selected and approved by large financial institutions. Once invested, these financial institutions will guarantee an annual income/return to Infinity Anchor Fund as well as a guaranteed return of capital immediately after the 5-year term. 

These underlying guarantees translate into a predictable annual income, return of capital, and exit in the hands of the taxpayer. Gaurav Nair, the CEO of Infinity Anchor Fund says that, 

“Infinity Anchor Fund Stable has been designed to eliminate the main reasons why taxpayers have been reluctant to invest in Section 12J investments, namely, the unpredictability of the SA economy over the 5-year investment term, the unpredictable performance of these investments and the difficulty many of these investments will have on exiting”. 

Infinity Anchor Fund Stable also addresses key factors that National Treasury will consider later this month, when determining whether to extend the Section 12J incentive beyond June 2021. These factors include deployment of capital and job creation. Nair says that, 

“Unlike any other Section 12J investment in the market, Infinity Anchor Fund Stable will be able to invest R200 million by the end of April this year into businesses which will support and/or create jobs across multiple sectors. We have been working alongside numerous large financial institutions for months to ensure that we have approved investee companies available for investment before we accept capital. 

Unlike RAs, Section 12J investments require a higher level of financial and tax understanding before an investment should be made. Particularly, because Section 12J investments have historically been notorious for charging high performance fees, resulting in underwhelming performance. 

The market has since developed, with new Section 12J investments starting to gain in popularity, allowing taxpayers to diversify their exposures across a number of Section 12J investments. Even though the market has matured, taxpayers should do their research before investing to avoid poorly performing Section 12J investments.