Benefits of NewFunds Traci EFT

Cash exposure in an investment portfolio can come in different guises.

A fixed deposit account with a decent interest rate is one way to go about it, but investors who prefer a more flexible option can consider the NewFunds Traci exchange-traded fund (ETF).

The NewFunds Traci ETF tracks the performance of Absa’s three-month fixed deposit accounts, with interest earned on these deposits daily.

The value of the ETF is calculated based on the current cash value of these deposits, plus the interest earned daily.

While a fixed deposit account might be simpler, this ETF has a few benefits.

Firstly, money market interest rates are higher than the rates your bank agreed to pay you.

Secondly, the ETF doesn’t lock you in for a period of time, like your fixed deposit account does.

Should you require cash right away, you can simply sell this ETF like any other.

As a diversification vehicle, this ETF remains in the green when markets go down.

Furthermore, interest rates tend to go up during times of market turmoil, positively affecting your ETF.

It is worthwhile wondering how the returns on this ETF will be taxed.

If you had invested your money in a fixed deposit account or kept it in a cash savings account, you would pay tax on the interest.

The interest you earned gets added to your annual earnings and taxed at your marginal rate.

In the case of the Traci, your interest gets reinvested.

You still have to declare that income and pay tax on it.

However, when you sell your Traci at a higher price, you have to be careful of capital gains tax.

This article was first published on Just One Lap