Page 69 - Profile's Unit Trusts & Collective Investments - March 2025

Costs and Pricing

the investor remains liable for tax on the interest portion if his or her total interest income exceeds
the tax free allowance for the year in question, even if the distribution has been reinvested.
DWT is deducted from securities before dividends are credited to a portfolio and to each
investor – the dividend portion is net of DWT and therefore there is no further tax liability for
individual investors when it comes to the dividend portion of a distribution.
Certain entities, like companies and retirement funds, are exempt from DWT. If units in a
collective investment scheme are held via a company, application can be made to the fund manager
to pay the gross dividend. Similarly, non-residents holding South African unit trusts may qualify
for a reduced rate of DWT if a double-taxation agreement exists between South Africa and the
investor’s country of residence. Most fund managers provide application forms for investors who
qualify for a reduced rate of DWT. Investors can also apply for DWT refunds where too much tax
has previously been deducted.
Cum and Ex Div
The terms “cum div” and “ex div” (cum dividend and ex dividend in full) derive from the stock
market. They are also used informally in the unit trust industry, however, although the word
“dividend” is something of a misnomer as the distributions made by unit trusts consist of
dividends and interest. As a rule, the word dividend used in the context of a payout by a unit trust
really means the distribution or income declaration.
“Cum” in this context means “with” or “including”, and “ex” means “after” or “excluding”.
Most unit trusts define very specific days for income declaration. This is usually the last day of a
month end, quarter end or year end (eg, 31 March or 30 June). Most funds pay dividends within
three or four business days after declaration.
The income declaration date is akin to the cum div date for a share. An investor buying a
participatory interest on the income declaration date (eg, 30 June) buys “cum div”, meaning he or
she qualifies for the dividend to be declared at close of trade that day. An investor buying the
following day buys “ex div”, meaning he or she does not qualify for the dividend.
The income declaration date is important because the unit price, all things being equal, will
drop by the value of the distribution between the cum div and ex div date.
As we saw under pricing, income accruals are for the benefit of investors and are incorporated
into the unit price. When income is declared, the income to be distributed is removed from the
portfolio. It follows that if there was no change in the market value of the underlying assets, the
unit price would fall by exactly the amount of the dividend to be paid.
The gap between income declaration and payment varies from one management company to
another. Some ETFs take over a month to pay out dividends, some unit trusts pay out 5 or 10 days
after declaration, but many pay on the next business day. Different management companies have
different policies when it comes to the frequency of income declaration. Many pay twice a year,
some only pay once a year, and a few (mostly Short Term Interest Bearing funds) pay quarterly.
Money market funds pay monthly.
Performance and Reporting
Fund Reports
In terms of notices published under CISCA, every collective investment scheme must submit
regular reports both to the registrar and to investors.
In addition to quarterly fact sheets (MDDs), CIS managers must also report to investors at least
once a year (within three months after the financial year end). The report must contain at least the
following information:
Disclosure of any material circumstances which affected the portfolio, especially details of any
deviations from the investment policy or objectives of the fund
Abridged income statement and balance sheet for the portfolio
Details of any qualification made by the auditor in its report on the financial statements of the
manager and the portfolio
Dates and amounts of each distribution by the portfolio

Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts 67