Page 143 - Profile's Unit Trusts & Collective Investments - March 2026

Classification of CISs Chapter 8

ILLAs and Preservation funds
A retirement annuity (RA) is a tax-deductible retirement funding vehicle (ie, a savings plan
towards retirement). A preservation fund is an approved vehicle for holding the proceeds
of a pension or provident fund until retirement (eg, when changing jobs). An ILLA is an
investment-linked living annuity which may be established at retirement age. Unlike a traditional life
annuity, which pays a fixed monthly amount during retirement, an ILLA allows the investor to draw
against income and/or capital in a flexible way. ILLAs are attractive because the capital amount forms
part of an investor’s estate, whereas the rights to a life annuity die with the investor (or the second
of joint annuitants). A major problem with ILLAs, however, is capital erosion where the retirement
lump sum is too small to produce sufficient income to satisfy the retiree’s monthly needs. Most LISPs
offer RAs, ILLAs and preservation fund products which allow investors to select underlying unit trusts
provided that in the case of RAs and preservation funds, the aggregate exposure by asset class conforms
to Regulation 28.
respond to different economic factors. This broad knowledge allows the manager to decide when to
be overweight in equities and underweight in bonds, or vice versa.
Benchmarks vary in the Flexible category. Peer group comparisons are the most popular, but CPI,
composite benchmarks and the FTSE/JSE All Share index are also used.

High, Medium and Low Equity funds
Like Flexible funds, these multi asset portfolios invest in the full spectrum of assets classes:
equities, bonds, money market securities and listed property stocks. The key difference is the limit
placed on equity exposure in each category. On the assumption that equities are usually the most
volatile asset class, these categories seek to group funds together according to differing levels of
risk – from an investor’s point of view, a fund in the Low Equity sector is regarded as less risky than
a fund in the Medium Equity category, which in turn would be seen as less risky than a fund in the
High Equity sector.
The High, Medium and Low Equity sectors all restrict property exposure (ie, holdings in listed
property shares) to a maximum of 25% of assets. This includes exposure to international property.
In addition, the sectors have the following equity exposure ceilings:
R High Equity funds may have a maximum effective equity exposure (including international
equity) of up to 75%;
R Medium Equity funds may have a maximum effective equity exposure (including international
equity) of up to 60%; and
R Low Equity funds may have a maximum effective equity exposure (including international
equity) of up to 40%.
Income funds
The Income funds sector, previously found under the then Fixed Interest category (now Interest
Bearing), contains funds that seek to maximise income yield while at least preserving capital.
These funds invest predominantly in government bonds, fixed deposits and other high income
earning securities, although under the 2013 classification revision they are allowed to hold equities
and listed property shares as well. This is the reason that some varied specialist income funds were
moved from the Fixed Interest category to the Multi Asset category.
In contrast to the rules governing funds in the Interest Bearing sectors, funds in the Multi Asset
Income sector have few restrictions on the type of income yield assets in which they can invest.
These portfolios are allowed a maximum effective equity exposure (including international equities)
of 10% and maximum listed property exposure of 25% (again, including international holdings).
There is no official benchmark for the Income funds sector. Benchmarks vary, with the STeFI being
the most popular (periods used differ). The All Bond index (Albi) is used as a benchmark by several
funds.

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