Benefits of Exchange-Traded Funds (ETF) in a Self Managed Superannuation Fund (SMSF)
The unique benefits of Exchange Traded Funds (ETF) appeal to investors and SMSF members.
What is an Exchange Traded Fund (ETF)
ETF’s are investment funds that trade just like stocks. They are referenced via a ticker on an exchange such as the Australian Securities Exchange (ASX), but represent a broad index of assets such as the 200 largest Australian stocks by market capitalisation in the case of the SPDR S&P/ASX 200 Fund.
ETF’s are often compared to managed funds but ETF’s have the following advantages:
ETF’s can be bought and sold each trading day on the stock market. Most manage funds require 3 to 5 business days to execute a buy or a sell. The value of the underlying assets in the managed funds could have depreciated markedly in that time.
Holdings in most ETF’s are transparent. Full disclosure enables investors to make more informed decisions on whether they buy, sell or hold. On the other hand it is quite difficult to determine exactly what shares the fund manager has invested in at a given point in time.
ETF are generally cheaper than the cost to invest in managed funds.
ETF’s are generally more tax efficient than managed funds. The ETF investors determine which financial year they choose to sell their investment not the fund manager. Accordingly, the investor may be able to defer the realising of the capital gain to a future year which in turn leads to the tax being deferred on that capital gain.
Consider using ETF’s in your Superannuation Fund
Where members have a low exposure to shares in a SMSF then the ETF’s become very effective. It means that the funds can be invested in a particular ETF and the portfolio becomes more diversified than if the Trustees purchased 5-10 listed shares.
ETF’s have all the tax benefits of direct shares. That is, the franking credits and dividends of the underlying share in the particular ETF are passed onto the SMSF. This in turn reduces the overall tax of the Superannuation Fund.
Also realising the capital gain on the ETF can be deferred until the superannuation fund is in pension stage, meaning that there will be no capital gains tax payable by the Superannuation Fund. Conversely, if the gain was realised in the accumulation phase there would have been 10% capital gains tax payable assuming the investment was held for greater than 12 months.
For more information on the benefits of ETF’s in your SMSF please feel free to contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.
The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.
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