Page 41 - Profile's Unit Trusts & Collective Investments - September 2025

Basic concepts Chapter 2

Foreign, offshore and global funds
CISCA defines offshore CISs as foreign investment schemes. We prefer to call them offshore
schemes to avoid confusion with rand-denominated global funds. The term offshore is
also slightly problematic though. In other countries, it often has the specific meaning of a
tax haven, but in SA it is used to indicate any overseas-domiciled and foreign currency-denominated
investment. Foreign and offshore can be used interchangeably in SA.
An offshore fund (in our terms) is one that is not domiciled in SA but in an overseas jurisdiction.
Offshore funds are usually euro-, pound- or dollar-denominated (ie, the base currency of the fund is
not SA rands). This differs from Global funds (as defined in the ASISA classification system), which are
rand-denominated SA-domiciled funds which invest mostly overseas.
South Africans can invest offshore by using either the single discretionary allowance of R1m or the R10m
offshore investment allowance per calendar year. The investment allowance was increased to R2m in
2003, to R4m in 2010 and to R10m in 2015. No documentary evidence is required by an authorised
exchange control dealer, such as a bank, to make use of the R1m discretionary allowance. However, a
valid Tax Compliance Status/Approval for International Transfer from SARS must be obtained before
utilising the R10m offshore investment allowance (ie, amounts exceeding R1m). Both allowances reset
annually and unused portions cannot be carried forward.
ASISA uses the following categories for geographic
classification of rand-denominated funds: A collective investment scheme in
R South African funds invest mainly in South participation bonds means a scheme
African assets. where the portfolio consists mainly of
R Global funds invest mainly overseas. participation bond assets and in which
investors acquire participatory interests in all the
R Worldwide funds invest in a mix of domestic and participation bonds included in the scheme.
overseas assets. A participation bond is a mortgage bond over
A similar classification system obviously applies immovable property, and must be a first mortgage.
to offshore funds (ie, non rand-denominated funds). Participation bond schemes by law have a minimum
An American mutual fund or UK unit trust can also be investment period of five years.
classified as “global” or “international” (investing all
over the world) or “regional” (investing in one country Prior to maturity, participatory interests in bond
or region). schemes are traded on a willing-buyer-willing-seller
basis, which typically makes them less liquid than
Most major countries do not have exchange control other collective investments.
regulations, and as a result the major differentiation
between local currency denominated funds and others (which we have in SA) is not common
overseas. Instead, funds disclose their domicile and their base currency, which may be pounds,
dollars, euros, or any other major currency.
Diversification and risk
Diversification is a cornerstone of nearly all investment philosophies. Spreading investments
across a range of shares or assets (ie, not putting all your eggs in one basket) is the most basic
method of reducing risk.
Different types of assets have different levels of risk. Money market instruments are very
low risk. Equities, on the other hand, are considered fairly risky – some more so than others.

Units and participatory interests
The term participatory interest is favoured under the Collective Investment Schemes Control
Act (CISCA) because the Act governs various types of collective investment schemes (CISs).
A CIS is not necessarily a “trust”, and can be a company or other structure. To quote from
CISCA, “Participatory interest means any interest, undivided share or share, whether called participatory
interest, unit, or by any other name...” It is not wrong, therefore, in terms of the Act, to talk about units
in a unit trust, or shares in listed property trust. All denote a type of participatory interest.

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