Getting to know the new Foundation Series funds
Article written by InvestNow – 1st December 2022
We’re pleased to welcome the Foundation Series US 500 Fund and the Foundation Series Total World Fund onto InvestNow. These two new global shares funds feature some of the lowest management fees of any PIE fund in NZ.
7 great reasons to consider the new Foundation Series US 500 and Total World Funds:
- Incredibly low on-going management fees of just 0.03% and 0.07% per annum respectively. In contrast, the management fee for the Vanguard International Shares Select Exclusions Index Fund is more than double at 0.20% per annum.
- Exposure to two of the world’s most popular ETFs - the Vanguard 500 Index Fund ETF (VOO) and the Vanguard Total World Stock ETF (VT), all within tax efficient New Zealand Portfolio Investment Entity (PIE) fund structures.
- Investors pay one-off transaction fees for each buy order (entry fee) and each sell order (exit fee), allowing these two funds to offer super-low ongoing management fees, which is ideal for long-term investors.
- Investor returns can be increased by up to 0.55% per annum as a result of the PIE tax benefits. As multi-rate PIE funds, tax is charged at a maximum rate of 28%. In comparison, where Kiwis invest in the Vanguard Australian unit trust funds on InvestNow, they will be taxed at their marginal tax rate, which can be as high as 39%.
- PIE tax is a final tax, so no more administration hassles! There’s no need to prepare and file a tax return every year, which is the case when investing in the Vanguard Australian unit trusts available on InvestNow.
- No additional foreign exchange costs. The funds are priced in NZ dollars and all transaction costs are covered by the funds’ entry/exit fees.
- Tax slippage is minimised as there is no additional non-resident withholding tax deducted on any of the underlying company dividends earned by the Foundation Series US 500 Fund and on 60% of the company dividends received by the Foundation Series Total World Fund. In contrast, for the Vanguard International Shares Select Exclusions Index Fund, non-resident withholding tax is fully deducted at 15% on all the company dividends received, resulting in tax slippage that reduces returns by around 0.30% per annum.
For more information on the impact of tax on investment returns, here is an excellent article that delves deeper into the benefits of utilising tax-efficient solutions such as the new Foundation Series Funds for your global shares exposure and how this could result in better financial outcomes for investors.
Pay lower management fees and less tax today by investing in Vanguard’s expertise through the new Foundation Series US 500 Fund and Foundation Series Total World Fund.
The issuer and manager of the Foundation Series Funds is FundRock NZ Limited.
You can download and view the PDS for both of these funds here.
The Foundation Series US 500 Fund and the Foundation Series Total World Fund are available today to all investors via the InvestNow platform. Login or create an account to invest.
Disclaimer: InvestNow is not a financial advisor and therefore we do not offer or provide personalised advice or recommendations. All investing involves risk. We encourage you to read the Product Disclosure Statement (PDS) of any prospective funds and consider seeking financial advice from a licenced provider, before making any investment decisions in any of the products offered on the InvestNow platform. Furthermore, any material relating to tax has been prepared for informational purposes only and is not formal tax advice, nor has it taken into account your individual tax circumstances.
Getting to know the new Foundation Series funds
Article written by InvestNow – 1st December 2022
We’re pleased to welcome the Foundation Series US 500 Fund and the Foundation Series Total World Fund onto InvestNow. These two new global shares funds feature some of the lowest management fees of any PIE fund in NZ.
7 great reasons to consider the new Foundation Series US 500 and Total World Funds:
- Incredibly low on-going management fees of just 0.03% and 0.07% per annum respectively. In contrast, the management fee for the Vanguard International Shares Select Exclusions Index Fund is more than double at 0.20% per annum.
- Exposure to two of the world’s most popular ETFs - the Vanguard 500 Index Fund ETF (VOO) and the Vanguard Total World Stock ETF (VT), all within tax efficient New Zealand Portfolio Investment Entity (PIE) fund structures.
- Investors pay one-off transaction fees for each buy order (entry fee) and each sell order (exit fee), allowing these two funds to offer super-low ongoing management fees, which is ideal for long-term investors.
- Investor returns can be increased by up to 0.55% per annum as a result of the PIE tax benefits. As multi-rate PIE funds, tax is charged at a maximum rate of 28%. In comparison, where Kiwis invest in the Vanguard Australian unit trust funds on InvestNow, they will be taxed at their marginal tax rate, which can be as high as 39%.
- PIE tax is a final tax, so no more administration hassles! There’s no need to prepare and file a tax return every year, which is the case when investing in the Vanguard Australian unit trusts available on InvestNow.
- No additional foreign exchange costs. The funds are priced in NZ dollars and all transaction costs are covered by the funds’ entry/exit fees.
- Tax slippage is minimised as there is no additional non-resident withholding tax deducted on any of the underlying company dividends earned by the Foundation Series US 500 Fund and on 60% of the company dividends received by the Foundation Series Total World Fund. In contrast, for the Vanguard International Shares Select Exclusions Index Fund, non-resident withholding tax is fully deducted at 15% on all the company dividends received, resulting in tax slippage that reduces returns by around 0.30% per annum.
For more information on the impact of tax on investment returns, here is an excellent article that delves deeper into the benefits of utilising tax-efficient solutions such as the new Foundation Series Funds for your global shares exposure and how this could result in better financial outcomes for investors.
Pay lower management fees and less tax today by investing in Vanguard’s expertise through the new Foundation Series US 500 Fund and Foundation Series Total World Fund.
The issuer and manager of the Foundation Series Funds is Implemented Investment Solutions Limited.
You can download and view the PDS for both of these funds here.
The Foundation Series US 500 Fund and the Foundation Series Total World Fund are available today to all investors via the InvestNow platform. Login or create an account to invest.
Disclaimer: InvestNow is not a financial advisor and therefore we do not offer or provide personalised advice or recommendations. All investing involves risk. We encourage you to read the Product Disclosure Statement (PDS) of any prospective funds and consider seeking financial advice from a licenced provider, before making any investment decisions in any of the products offered on the InvestNow platform. Furthermore, any material relating to tax has been prepared for informational purposes only and is not formal tax advice, nor has it taken into account your individual tax circumstances.
Hedged in NZ dollars?
Hi
Firstly, apologies for my tardiness in responding to your questions. There is no current hedging in these two new Foundation Series funds.
Regards, Mike Heath
GM InvestNow
Are dividends automatically reinvested at the cost of 0.5% for US500 and Total World funds?
Thanks Jay, great question.
Any distributions/dividends generated by the underlying ETFs are automatically reinvested for InvestNow customers and do not incur any transaction fee.
Does that answer your question?
Regards Mike Heath
GM InvestNow
Awesome, thank you! Another question, I can’t see anything about the distribution frequency for the foundation funds. Does that mean the dividends received from these funds are never seen and are just reflected in the holdings?
Thanks Jay. Yes that’s correct, the dividends/distribution are automatically reinvested into your holdings.
Regards, Mike Heath
GM InvestNow
Could you please clarify, if I invest in TWF for 5 years and sell after that period, do I have to pay a 28% tax on my gains?
Hi Harry. Firstly, apologies for being so tardy in responding to your question (a technical issue resulted in us not being alerted to comments having been posted by customers on our website).
PIE tax is not directly related to the change in value of the fund, nor the distributions paid by the fund. PIE funds attributes its income/loss from its investments, expenses and tax credits across each day in the year. The net taxable income and tax credits are divided up among all of the units of the fund, and a share of the income and credits is attributed to everyone investing in the fund. PIE tax is then calculated based on each investors’ PIR.
When investing into foreign investments through a PIE fund (such as the Foundation Series Total World Fund), investors are deemed to have earned a taxable return of 5% each year, which is taxed at your PIR rate. If your PIR rate is 28%, then your tax obligations for the Total World Fund is 5% x 28% = 1.40% of the value of the fund each year.
This 1.40% PIE tax charge applies irrespective of whether the underlying Total World Fund returned more than 5% or less than 5% in any one year, you will only ever be deemed to have returned 5% in any one year. This 1.40% PIE tax charge is automatically deducted for you (reflected in the unit price of the fund) so when you eventually sell your Total World Fund holdings there is no additional tax you need to pay.
Regards, Tom Ayling, Head of Customer Services InvestNow
Does the dividends count towards the 50k limit for FIF?
Hi Trish. Firstly, apologies for being so tardy in responding to your question (a technical issue resulted in us not being alerted to comments having been posted by customers on our website).
When you invest in the Foundation Series US 500 and Total World Funds, you do not have any FIF tax obligations as an individual investor. Both funds are a multi-rate PIE funds, with any tax obligation calculated using your Prescribed Investor Rate (PIR) and paid to the IRD on your behalf.
If you are investing in the Vanguard International Shares Select Exclusions Index Fund or Vanguard International Shares Select Exclusions Index Fund (NZD Hedged), if you elect to have your dividends reinvested, they will count towards your $50K threshold. If you have the dividends paid as cash, they will not count.
Regards, Tom Ayling, Head of Customer Services InvestNow
Kia ora, the PDS mentions
“Your investment in a Fund can be sold but there is no established market for trading these financial products.
This means that you may not be able to find a buyer for your investment.”
Can you provide a view on what that means in practice, considering likely and unlikely (incl. worst case) scenarios?
Hi Hendo
Can you please confirm which PDS you are referring to.
Thanks
Mike Heath
GENERAL MANAGER
InvestNow
Sorry, both the TWF and the S&P500
(in the summary section under “How can you get your money out?”)
Hendo
Every day our customers transact millions of dollars of buy and sell orders for the funds we offer, including the two you are referencing, with those orders then being sent to the respective managers for fulfilment. As it’s states in the PDS, the fund manager can decline to execute a sell order, if they felt it could be “impracticable or materially prejudicial”, however we have not seen this happen to date on InvestNow. The exception to this has been where a manager is facilitating an already communicated/disclosed closure of a fund (when this has been the case, the unit holders are communicated to directly in advance about such an event).
I trust this answers your question.
Regards
Mike Heath
GM, INVESTNOW