With just over R6bn under management and over 160 12J funds in existence, thousands of investors have injected capital into local SMEs that play in sectors ranging from hospitality and tourism to renewable energy, and many more.
In return, every 12J investor receives an immediate tax deduction equal to 100% of the amount they’ve invested in the first year of their investment. Added to this, Section 12J funds typically have regular investment returns in the form, for example, of dividends.
Section 12J has a sunset clause of 2021 with the possibility of an extension beyond that. This means that there are still opportunities to invest, and here are five reasons to consider why you should take a closer look at this exciting space.
- In a country like South Africa — where equities have had several lean years — investors are paying more attention than ever before to their portfolios and their returns. In fact, the FTSE/JSE All Share Index (Alsi) has returned only 4.7% per annum for the last three years ending 31 August 2019, according to a recent article in Business Day. This is lower than cash investments, which returned 7.4% per annum for the same period. In the search for yield, one investment category that is grabbing more attention than ever before is the fastest-growing asset class in SA, which is Section 12J. A good example to consider is MeTTa Capital – which is a 12J fund of funds that is of medium risk. Portfolios in MeTTa Capital look to return between 16-19% IRR’s to Investors over their investment term.
- We’re currently living through a time in South Africa when more investors than ever before are looking to be tax efficient. Many investors are also looking to shift more of their capital offshore. Section 12J is a real alternative for these types of investors as they can see relief of up to 45% on their investments in the year they invest in their chosen 12J fund. Not only does this reduce the investor’s risk capital and create a strong tax incentive, but it also ensures that vital capital for SMEs has a better chance of staying within SA’s borders and being used to fund a brighter future for the country. These SMEs then have the potential to become large taxpayers in future.
- We all know that banks traditionally steer clear of SMEs because of their risk profile. But Section 12J, which is highly regulated, provides SMEs with an alternative capital raising mechanism. More than ever, we need SMEs to succeed and grow in SA if we want our economy to expand faster. A greater number of SMEs will further help reduce our high rate of inequality. Therefore, by investing in 12J funds, you are engaging in a form of social good that has positive economic spinoffs.
- Section 12J has matured very quickly over the years to include advanced market offerings. Again, the likes of MeTTa Capital have innovated by providing investors with a fund of funds approach as well as advanced reporting. Across the board, there is growing transparency in the space. All of these factors have attracted several top South African business veterans who have launched 12J funds in recent years – emphasising the ever-growing popularity and attractiveness of this space.
- With the rise of this asset class, more institutional investors than ever before are set to enter the 12J space. Already, the likes of Investec offer their clients investment options in 12J funds. We expect many more banks to follow suit in years to come as their clients demand more options when it comes to diversification. Investing in a 12J fund now will keep you ahead of the curve.