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

Costs and pricing Chapter 3

deals with any tax issues within the portfolio itself. Due to the unfavourable way that roll-up funds
would be affected by tax in SA (ie, the portfolio would have to pay income tax on all interest received
and dividends withholding tax (DWT) on dividends), there are no roll-up funds in SA at the moment.
Some offshore funds offer investors a choice of “accumulation units” or “income units”.
With reinvestment of distributions, the fund keeps track of income accruals in respect of each and
every investor, and either pays or reinvests the income due to that investor. As previously mentioned,
distributions for a fund holding equities usually consist of two parts, dividends and interest.
Note that the investor receives a statement of the split between interest and dividends for a
particular distribution whether the income payment is automatically reinvested or not. The tax
liabilities of the investor do not change because the distribution has been reinvested – 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 SA 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 five 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.

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