/ 6 January 2011

Jargon buster: Asset swaps

When you invest globally, you can invest in either rand-denominated (asset swap) or foreign domiciled funds, which are denominated in foreign currencies.

According to Stephan Schalekamp, manager of fund research and development at Stanlib, an asset-swap fund is a unit trust that uses a company’s asset-swap capacity to invest offshore. South African asset managers are allowed to invest 30% of their retail assets under management as asset-swap investments.

Asset-swap funds are an effortless way to diversify offshore. You do not have to apply for foreign allowance clearance and your application does not have to be approved by the South African Reserve Bank. You get all the benefits of investing globally and dealing with a South African institution without having to physically take your money offshore. There are no limits to the amount that can be invested offshore via an asset swap; however, your investment must be repatriated to SA in the future.

On the other hand, if you would like to invest in foreign currency and be able to use the proceeds of your investment offshore — to fund a child’s education or retire abroad — foreign domiciled investments are more suitable. As part of your application, you will have to get foreign allowance clearance and your application will have to be approved by the South African Reserve Bank. South African investors have a foreign allowance of R4-million per annum.

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