Chapter 5 - Investment

List the four main asset classes. (4 marks)

1. Cash

2. Bonds

3. Equities

4. Property

Outline the three main ways to invest in property. (3 marks)

1. Invest directly into one or more commercial properties.

2. Through a collective investment fund which, in turn, invests in a range of commercial properties. Most property funds will be situated in a particular area, for example, an Irish property fund, a UK property fund or a European property fund.

3. In a real estate investment trust (REIT), that is, a property company listed on a stock exchange.

Irene wishes to open a deposit account with Delta Bank. As an advisor in the Bank list six key pieces of information you need to take into account about the deposit accounts offered by the Bank when assessing their suitability for Irene. (6 marks)

• Minimum and maximum investment of the deposit.

• Does the account require regular lodgements?

• Can the account provide withdrawals and to what extent?

• Fixed term, if any.

• Interest rates; what are the interest rates and how frequently is interest credited to the account?

• Tax on interest

• Whether credited interest is made to the account or paid out as regular income.

• Penalties for early withdrawal

List five exemptions to DIRT being charged at source on the interest earned on deposit accounts. (5 marks)

1. Non-residents

2. Registered charities

3. Pension funds including PRSAs and ARFs

4. Companies, who instead pay a separate corporation tax of 25%

5. Individuals who have reached aged 65, or whose spouse/civil partner is over age 65, and their total income is less than €18,000, or €36,000 in the case of a married couple/civil partners

6. Individuals who are permanently incapacitated.

7. Individuals who are permanently and totally incapacitated as a result of personal injury can reclaim DIRT arising from the investment of compensation awards, where the investment returns are the sole or main income (that is, more than 50%) of the individual.

In what circumstances can Mary, who received a compensation award be exempted from paying DIRT on the interest applied to her deposit account? (2 marks)

If Mary is permanently and totally incapacitated as a result of personal injury, she can reclaim DIRT arising from the investment of compensation awards, where the investment returns are her sole or main income (that is, more than 50%).

What are the two ways that an individual will expect to get a return as a result of investing in shares? (2 marks)

1. Dividend Income

2. Capital Growth on sale of shares

What are the three main factors that could affect the price of an individual share? (3 marks)

1. General investment market factors

2. Factors affecting a particular sector

3. Factors affecting individual companies

Kevin has invested in an Irish Treasury Bond. He receives an annual coupon of 3% of the value of the bond and if he keeps the Bond until maturity currently stands to make a capital gain. How much CGT will he be liable for from the gain he makes on the sale?

There is no Capital Gains Tax payable on any gain made on the sale of an Irish Treasury Bond.

What two categories of individuals are liable for a PRSI charge on the income they have received from Bonds?

PRSI is charged at 4% on income from bonds for:

1. An individual who is self-employed and pays Class S PRSI.

2. Employees and those receiving occupational pensions and who have gross taxable investment income of more than €5,000 in a year.

List the three ways in which a Collective Investment Fund is typically structured. (3 marks)

1. Unit linked fund

2. Unit trust fund

3. Investment Company

List four of the main asset classes used in collective investment funds. (4 marks)

1. Cash

2. Property

3. Bonds

4. Equities

5. Commodity funds.

Outline the main features of the following types of investment management:

(i) Active Management

(ii) Passive Management

1. Active Management - The investment manager attempts to use their skills to outperform the performance of the benchmark against which the fund performance is to be measured. For example, an actively managed fund investing in European equities will attempt to outperform a specified index of European equities. In attempting to outperform the benchmark, certain limits may be placed on the investment manager in relation to risks which can be taken by the fund. The objective of active investment management is to produce a return in excess of the overall market return.

2. Passive Management - Passive investment management aims to achieve average market returns at a lower cost than that of actively management funds; it does not set out to beat the market. One method of passive investment management in relation to stock selection is index tracking, where the fund aims to track a particular stock market index.

Rachel invested €45,000 in a Collective Investment Fund in 2015. On the 8th anniversary of the fund it is worth €68,000. Calculate Rachel’s exit tax liability. ( 3 marks)

Gain on fund = €68,000 - €45,000 = €23,000

Exit Tax = €23,000 x 41% = €9,430 exit tax liability.

Ruth is aged 66, with a yearly income of €15,000. She wishes to invest €10,000 in a Tacker Bond. She is considering one issued by a life company and another that is issued by a bank. Both have a capital guarantee of 100%. Explain, based only on the information provided which type of tracker bond, life or deposit, would be more suitable for Ruth and give the reason why. (2 marks)

A deposit tracker would be more suitable as she is aged 66, with her income level below the Income Tax exemption, so she is exempt from paying DIRT. Therefore, the returns on a deposit Tracker Bond would be tax free. Gains on a life assurance tracker bond are liable to Exit tax, which Ruth cannot be exempted from on the basis of age.

Rose wishes to invest in a Structured Bond. Outline three benefits and three challenges associated with a Structured Bond. (6 marks)

Benefits:

• Structured products can enable access by retail investors to a range of different and non standard investments.

• Where applicable MiFID ii now requires that the best and worst-case outcomes are outlined which assists investors in understanding the risk of a complex product.

• MiFID ii also requires full transparency of fees and charges, which aids product comparability which was historically opaque.

• Structured products can form part of an investor’s portfolio where it acts appropriately (aligned to investor risk appetite and time horizon) as a complement to more traditional assets held (diversification).

• Structured products can provide market exposure without full risk to capital.

Challenges:

• Complexity in understanding the product. (Difficult for inexperienced investors).

• Closed-end investment, no ability to stay invested beyond the maturity date.

• Guarantees to capital need to be fully assessed and the best and worst-case scenarios understood.

• Difficulty in evaluating a future position (e.g., level of an index/stock price) at a specified time in the future.

What are the three taxes that a Structured Bond may be liable to, depending on the make-up of the Bond? (3 marks)

They may be chargeable to Exit tax, Income tax or Capital gains tax, depending on the type of structure and the underlying assets.

Outline 5 potential risks associated with investing in a Structured Bond. (5 marks)

1. The level of protection to capital is based on the terms of the guarantee provided and this needs to be evaluated and understood. Partial or soft guarantees are sometimes described which can be (conditional) based on the achievement of certain hurdle events.

2. The credit quality of the provider of the Guarantee will vary and is a key consideration (Counterparty risk)

3. Prevailing market conditions can impact the value of the option. (Market risk)

4. Some structured products can be sector/region focused (e.g., financial stocks, oil stocks, German index) creating a concentration risk.

5. While access to funds may be allowed, mid-term liquidity may be based on finding a willing purchaser.

6. Usually investors must hold to a specified maturity date. (Liquidity risk)

7. Inflation over the investment term can erode value in real terms. (Inflation risk).

What type of savings plan would you recommend to Fiona, as being suitable to set up under Section 73 to fund gift tax? (2 marks)

A unit linked savings plan

List three tax incentive schemes that may be available to an employee whereby they can invest in shares of their employer’s company. (3 marks)

1. Save As You Earn Scheme

2. Approved Profit Sharing Scheme

3. Key Employee Engagement Programme

Eoin’s company have offered him access to a Save You Earn Scheme, however he has not heard of it before.

Discuss the main features of the scheme, outlining;

i) The two components of the scheme

ii) Minimum and maximum savings amount

iii) Taxation of both components

iv) Share option possibilities (12 marks)

1. A savings element where an employee agrees to save a monthly amount from after tax income, of between €12 and €500 per month for a chosen period, either three or five years. Where a five-year-term is chosen, the savings may be left on deposit for a further two years at the end of the five-year-term. Any interest or bonuses earned is tax free and not subject to DIRT. This applies regardless of whether or not the employee uses the funds to buy shares in the company.

2. An approved savings related share option scheme set up by an employer under which an employee is given an option to purchase shares at a fixed price (which cannot be less than 75% of the market value of the shares at the time of granting the option) at a particular time. The option must not be capable of being exercised before the bonus date under the savings scheme. The accumulated savings plus bonuses can then be used by the employee to exercise the option and buy the shares within six months of the end of the chosen savings period.

3. No income tax is charged on the granting or exercise of the option to buy shares. If the share price increases over the option price, the employee can exercise the option to buy them and sell them to make an immediate capital gain chargeable to CGT or hold on to the shares. PRSI and USC are also levied on any gain realised on the exercise of the option.

4. If the share price decreases, the employee still benefits from the tax-free investment of the savings he has placed on the SAYE scheme regular deposit even if they do not take the option to buy the shares.

List 5 assets that are classed as alternative assets. (5 marks)

1. Private equity, that is, shares not listed on a stock exchange.

2. Precious metals.

3. Works of art.

4. Collectible coins, vintage wine, etc.

5. Commodities such as oil or gas.

6. Foreign currencies directly or a currency fund.

7. Derivatives and hedge funds.

8. Infrastructure investment

Outline five ways in which alternative asset classes differ from traditional asset classes. (10 marks)

1. They are frequently less liquid than bonds and equities, other than ETFs.

2. The minimum investment is frequently higher.

3. Investing in alternative assets may not be as highly regulated and protected.

4. Alternative assets generally have more risk.

5. They may be negatively correlated, or at least not as strongly positively correlated to the returns provided by traditional asset classes. For this reason, they are useful in diversifying a portfolio.

Maria wants to invest in private equity. What three things need to be taken into account by the adviser when providing advice to Maria about her potential investment? (3 marks)

1. Her tolerance for risk.

2. Her appetite for risk should be taken into account.

3. To ensure that she has sufficient liquidity in her portfolio.

Zara has €10,000, which she is planning to invest for 5 years. If inflation is growing at a rate of 2% p.a., what is the minimum return she will require on her investment in 5 years to ensure she does not make a real loss? (3 marks)

She will require a minimum return of 2% over the five years.

€10,000 invested now for five years. Assuming inflation rate of 2%, the investment will need to grow at the same rate to ensure no real loss.

€1,000 at end of five years, assuming rate of 2% is €1,104. Therefore, €10,000 at end of five years assuming rate of 2% is €11,040.

Derek has promised to pay Gavin €5,000 in 4 years’ time in return for lending him €4,000. Assuming that the rate of inflation is 3% p.a., what is the real return Gavin will make on the loan to Derek? (3 marks)

€5,000 in 4 years’ time assuming a rate of inflation of 3%, needs to be put back to present value.

In 4 years’ time, assuming 3% inflation, each €1,000 paid in 4 years’ time in today’s value is only worth €888.

€888x 5 = €4,440

Therefore, the real return is €440. (i.e. €4,440-€4,000)

Explain each of the following terms:

(i) The Internal Rate of Return (IRR)

(ii) Reduction in Yield (RIY)

(iii) Annual Equivalent Rate (AER)

1. The Internal Rate of Return (IRR)

The IRR is the term used to describe the interest rate at which the present value of one series of payments is equal to the present value of another set of payments, that is, the rate at which the net present value of the two series of payments is zero.

2. Reduction in Yield (RIY)

RIY is the term used to describe a means of expressing the impact of all projected charges in a savings or investment product over a period of time, in terms of a reduction in the yield or return that would otherwise have been provided if the policy carried no charges at all.

3. Annual Equivalent Rate (AER)

AER is the return on deposits in terms of the rate payable at the end of the year. The Central Bank Consumer Protection Code requires that any advertisement for a savings or deposit account must show the AER along with the relevant interest rate quoted. The AER is therefore different to the interest rate as it takes compounding into account.

List 5 types of investment risk that could be associated with a lump sum investment. (5 marks)

1. Market risk.

2. Specific risk.

3. Active investment management risk.

4. Currency risk

5. Gearing risk.

6. Liquidity risk.

7. Timing risk.

8. Inflation risk.

9. Interest rate risk.

10. Default/credit risk.

11. Counterparty risk.

12. Target return risk.

Compare and Contrast Deposits held with a Bank & State Savings Certificates under the following headings: (10 marks)

i) Return

ii) Investment Risks

iii) Investment Term

iv) Taxation

v) Access

1. Return

Deposits

Can be either:

• Income, that is, interest paid out.

• Capital growth, that is, interest accumulated in account

State Savings Accounts

Capital growth. Savings certs offer a guaranteed return at half yearly anniversaries.

Savings bonds and National Solidarity Bonds normally offer guaranteed returns at yearly anniversaries.

2. Investment Risks

Deposits

• Some deposits offer a fixed return over a fixed period. Subject to some investment risks

• Inflation risk.

• Interest rate risk where it is not fixed.

• Default risk by the bank or credit union, over the deposit guarantee protection, that is, €100,000 per individual.

State Savings Accounts

• Returns guaranteed by the state. Subject to some investment risks

• Inflation risk as returns are fixed in monetary terms.

3. Investment Term

Deposits

Fixed terms on term accounts only.

State Savings Accounts

Varies with the products from three-year bonds to 10-year bonds

4. Taxation

Deposits

Deposit interest is subject to DIRT at 33%. No USC. Gross interest subject to PRSI for Class S or when the holder’s investment income exceeds €5,000 per annum. Over 65s or individuals who are permanently incapacitated can apply for DIRT exemption.

State Savings Accounts

Tax-free returns. No DIRT, USC or PRSI on returns.

5. Access

Deposits

Varies by the notice period or term, if applicable. Some notice accounts may offer periodic partial withdrawals during the term. Penalties will generally apply to early encashment of fixed term or notice deposits.

State Savings Accounts

Seven working days’ notice.

Ciara has decided that she wants to begin investing on the stock exchange, but she is unsure whether investing in listed shares or listed bonds is more suitable for her. She has come to you for financial advice. Outline to her, under 5 separate headings, the differences between listed shared and bonds that she needs to be aware of prior to investing. (10 marks)

Shares listed on a Stock Exchange

1. Return

Can be a combination of:

• Dividend income, but some companies don’t always pay dividends

• Capital growth.

2. Investment risks

Ordinary shares carry no guarantees. Shares may be subject to:

• Market risk.

• Specific risk.

• Currency risk.

• Inflation risk although shares in the long term offer the best protection against inflation risk.

• Interest rate risk. An increase in interest rates usually cause bond values to fall.

• Inflation risk as returns are usually fixed in monetary terms.

• Currency risk if in non-euro currency.

3. Investment term

No fixed investment term. Varies from a few months to up to 15 years and more

4. Taxation

Dividends from Irish resident companies subject to dividend Withholding tax (DWT) at source. Dividends from foreign companies may be subject to a local withholding tax.

Investor liable to income tax, USC and PRSI (Class S and others whose investment income exceeds €5,000 per annum) with credit for income tax allowed for DWT, if any, deducted at source.

Gain is liable to CGT at 33% but can be offset against CGT losses. The first €1,270 of gains in any one year are free from CGT.

5. Access to Funds

Very liquid – probably three days.

6. Charges

1% stamp duty on purchase. Stockbrokers commission on purchase and sale.

Bonds listed on a stock exchange

1. Return

Provide a fixed income return for the duration of the bond. Provide a guaranteed capital payment of the nominal value of the bond at maturity.

2. Investment risks

• No guarantee on capital value if the bond is sold before maturity.

• If the bond is purchased above par (its nominal value), then capital loss is guaranteed at maturity.

• Bond issuer default risk

3. Investment term

Varies from a few months to up to 15 years and more

4. Taxation

Income paid gross liable to income tax, USC, PRSI (Class S and for others whose gross investment income exceeds €5,000 per annum).

Gains on Irish treasury bonds are exempt from CGT.

Gains from other bonds are liable to CGT at 33% but can be offset against other CGT losses.

A loss on one investment can be offset against a gain on another investment.

5. Access to Funds

Very liquid – probably three days.

6. Charges

Stockbrokers commission on purchase and sale.

Compare and Contrast Unit Linked Bonds and Tracker Bonds under the following headings;

i) Return

ii) Investment Term

iii) Taxation

iv) Charges

v) Access to Funds

1. Return

Unit Linked Bonds

Choice of accumulation or distributing funds with CIFs. Unit-linked bonds will have capital growth only but may offer regular withdrawals to meet an income need.

Tracker Bonds

Capital growth only. There is usually:

• A guaranteed minimum return at maturity which tends to be between 90%-100%.

• A bonus related to the performance of various stock Classification: Confidential indices or a basket of shares generally.

• A cap on maximum return is common.

• Participation rate will not necessarily be 100%, can be lower or higher.

2. Investment Term

Unit Linked Bonds

Usually no fixed investment term.

Tracker Bonds

Usually a fixed term typically five years.

3. Taxation

Unit Linked Bonds

Funds accumulate tax free (gross roll up). For those established in the State, exit tax 41% on gains at exit or every eight years (deemed encashment).

Tracker Bonds

Life assurance trackers attract exit tax at 41% on gains and deposit-based trackers 33% DIRT. The same DIRT exemptions apply as with deposits.

4. Charges

Unit Linked Bonds

Combination of some or all of:

• Initial charge.

• Encashment charge.

• Annual fund charge.

Tracker Bonds

Initial charge being the difference between:

• The initial investment amount; and

• The sum of the cost of the derivative/option to provide the bonus and the amount invested to provide the guaranteed capital sum at maturity. Initial charges are therefore already reflected in the bonus terms and capital return promised. 1% stamp duty levy for life assurance tracker bonds only.

5. Access to Funds

Unit Linked Bonds

Usually within a few working days.

Tracker Bonds

Usually no access until maturity but may be allowed, subject to a penalty.

Robert has asked Delta Insurance Brokers for advice regarding investment products. Following a factfind you have determined that income generating products are more suitable for Robert than capital growth. List 4 income generating products that may be suitable for Robert to invest in. (4 marks)

• Deposits, that is, income paying.

• Shares listed on a stock exchange, which pay out regular dividends.

• Income distributing collective investment schemes (for example, unit trusts), that is, who distribute their investment income, usually half yearly, to investors.

• Irish Government bonds, that is, treasury bonds, which pay a yearly income until the bond’s maturity.

• Purchased life annuity (PLA)

Why does a consumer’s taxation position form an integral part in assessing suitability for a particular investment product? (4 marks)

There is an interaction with the consumer’s taxation position in determining the most suitable product or combination of products for a consumer who may or may not seek income from his or her investments. For an investor under 65, who is using their income tax credits and paying tax at the highest rate, a capital gain may be more preferable at 33%. However, if the investor’s income is low or there are unused tax-deductible payments or credits, an investment subject to income tax and USC may be preferable.

Harry and Sophie are a married couple. Aged 68 and 69 respectively. Their joint income for 2023 is €29,000. List three products that may be suitable for them from a taxation point of view and explain why you feel each one is suitable. (6 marks)

• They could invest in a treasury bond and obtain a gross tax-free return.

• They could invest directly in Irish quoted shares and reclaim the dividend withholding tax deducted on the dividend payments.

• They could invest in a deposit account, and, as they are over age 65, the deposit interest would not be liable to DIRT, provided their total income including the deposit interest, did not exceed the income exemption limit.

Note: However, in the case of a treasury bond and shares, the income would be liable to USC, but the deposit interest would not.

List 5 factors which will affect how a fund’s future performance will be determined. (10 marks)

• The fund’s investment strategy, for example, actively managed or passively managed.

• Future economic conditions, which will determine movements in the stock markets. No one can predict these in advance.

• The costs and charges incurred by the fund, for example, the level of fund management charge.

• The fund manager’s skills, where the fund is being actively managed.

• Luck.

When recommending a managed fund to Saoirse certain factors should be taken into account to ensure that the chosen fund matches her needs and attitude to risk? Outline three of the factors that would need to be considered. (6 marks)

• Check the investment mandate or objective of the fund? Has the fund a particular investment objective? Is such an objective consistent with the consumer’s attitude to and capacity for investment risk?

• Check if the fund has a published risk rating either from the fund provider itself and/or from a third party? How does the provider describe the risk profile of the fund?

• Ascertain the current asset allocation policy for the fund.

• Will the fund be regularly rebalanced so that its asset allocation and hence risk rating may not drift away from current levels over time?

• Only recommend a fund to consumers where the current asset allocation policy of the fund closely matches the consumer’s attitude to risk. For example, a managed fund that is, say, 75% invested in equities is in reality likely to display a level of volatility much like an equity fund. If an equity fund was considered to be too risky for a particular consumer, due to its potential volatility, is a managed fund with 75% invested in equities suitable for this consumer?

• The customer’s time horizon.

• All other things being equal, recommend the fund with the lowest level of annual fund charge.

List three risks associated with investing in each of the following products.

i) Deposits

ii) National Instalment Savings

iii) SAYE Schemes

iv) Investment Plans linked to domestic Collective funds

(6 marks)

1. Deposits

Capital secure. Some deposits may offer a guaranteed return over a fixed period. Subject to some investment risks

• Inflation risk.

• Interest rate risk, where interest rate is not fixed.

• Default risk. However, deposit guarantee scheme protects 100% of deposits with banks operating in Ireland, up to a maximum of €100,000.

2. National Instalment Savings

Capital secure; guaranteed by the State. Subject to some investment risks:

• Inflation risk, as returns are fixed in monetary terms.

3. SAYE Schemes

As for deposits, until accumulated funds are used to purchase shares under share option scheme. However, option does not have to be exercised. Fixed deposit rate applies to deposit part. If option exercised, the shares usually carry no guarantees on dividend payments or capital value. Shares subject to following risks:

• Specific risk.

• Currency risk, if denominated in non-Euro currency.

• Inflation risk. However, traditionally shares have, over the long term, offered the best protection against inflation.

• Liquidity risk.

4. Investment Plans linked to domestic Collective funds

Varies according to the investment objective of the fund or funds the investor invests in. Most products offer a choice of different fund types, for example, funds investing in particular asset types, sectors, and/or geographical areas, as well as managed or mixed asset type funds. Depending on the fund or funds invested in, investment may be subject to some investment risks:

• Market risk.

• Currency risk, in relation to any non-Euro assets held by fund.

• Inflation risk. However, traditionally shares and property have, over the long term, offered the best protection against inflation.

• Interest rate risk.

• Default risk.

Compare and contrast deposits and national instalment savings under the following headings:

i) Investment Risks

ii) Access to Funds

iii) Taxation

iv) Investment Term

v) Charges

1. Investment Risks

Deposits

Capital secure. Some deposits may offer a guaranteed return over a fixed period. Subject to some investment risks:

• Inflation risk.

• Interest rate risk, where interest rate is not fixed.

• Default risk. However, deposit guarantee scheme protects 100% of deposits with banks operating in Ireland, up to a maximum of €100,000.

National Instalment Savings

Capital secure; guaranteed by the State. Subject to some investment risks:

• Inflation risk, as returns are fixed in monetary terms.

2. Access to Funds

Deposits

Notice and term accounts do not usually allow withdrawals during the notice/term period; some may allow some access subject to a penalty on interest.

National Instalment Savings

Seven working days’ notice.

3. Taxation

Deposits

Deposit interest is subject to DIRT at 33%. Some individual investors may not be liable to DIRT that is, an individual who is, or whose spouse is:

• Over 65; or,

• Permanently incapacitated. AND not otherwise liable to tax on the deposit interest, subject to completing a declaration. No USC. Gross deposit interest subject to PRSI for Class S and for others whose gross investment income is more than €5,000 per annum.

National Instalment Savings

Tax-free returns. Not liable to DIRT, PRSI or USC.

4. Investment Term

Deposits

Tax-free returns. Not liable to DIRT, PRSI or USC.

National Instalment Savings

12-month savings term. May be left to accumulate at fixed rates for another five years after the end of the savings term.

5. Charges

Deposits

No explicit charges. However, a breakage penalty in terms of reduced interest may be applied on early withdrawals during some notice or term accounts

National Instalment Savings

No explicit charges. However, returns are scaled to produce higher returns the longer the investment is held. Early withdrawal will therefore lead to a lower rate of return than if the investment were held for a longer period.

Laura would like to invest in a Unit Linked Savings Plan. List five different charges that could potentially be applied to a unit linked savings plan. (5 marks)

1. Bid/offer spread.

2. Non-allocation period, during which contribution is not used to purchase units.

3. Monthly policy fee. For example, typically €3~€4 per month. Provider may have an option to increase in line with inflation.

4. Encashment /termination charge.

5. Annual fund charge.

Compare and contrast national instalment savings and unit linked savings plans under the following headings:

i) Investment Risks

ii) Investment Term

iii) Taxation

iv) Access to Funds

v) Charges

1. Investment Risks

National Instalment Savings

• Capital secure; guaranteed by the State.

• Subject to some investment risks:

• Inflation risk, as returns are fixed in monetary terms.

Unit Linked Savings Plans

Varies according to the investment objective of the fund or funds the investor invests in.

Most products offer a choice of different fund types, for example, funds investing in particular asset types, sectors, and/or geographical areas, as well as managed or mixed asset type funds.

Depending on the fund or funds invested in, investment may be subject to some investment risks:

• Market risk.

• Currency risk, in relation to any non-Euro assets held by fund.

• Inflation risk. However, traditionally shares and property have, over the long term, offered the best protection against inflation.

• Interest rate risk.

• Default risk.

2. Investment Term

National Instalment Savings

12-month savings term. May be left to accumulate at fixed rates for another five years after the end of the savings term.

Unit Linked Savings Plans

Usually no fixed investment term. Due to nature of charges which can be imposed (particularly plans with front ended charges) and potential volatility of fund returns, most providers recommend a minimum savings term of at least 10 years

3. Taxation

National Instalment Savings

Tax-free returns. Not liable to DIRT, PRSI or USC.

Unit Linked Savings Plans

• Funds accumulate tax free

• Exit tax at 41% applies on gains realised on encashment and on deemed encashments every eight years, and on income distributions.

• No USC or PRSI.

4. Access to Funds

National Instalment Savings

Seven working days’ notice.

Unit Linked Savings Plans

Usually within a few working days. Funds usually priced daily. However, property funds frequently retain the right to defer encashment requests for a period, for example, up to six months, in circumstances where there is negative cash flow into the fund and the fund needs to sell properties to raise cash.

5. Charges

National Instalment Savings

No explicit charges. However, returns are scaled to produce higher returns the longer the investment is held. Early withdrawal will therefore lead to a lower rate of return than if the investment were held for a longer period.

Unit Linked Savings Plans

Combination of some or all of:

• Bid/offer spread.

• Non-allocation period, during which contribution is not used to purchase units.

• Monthly policy fee. For example, typically €3~€4 per month. Provider may have an option to increase in line with inflation.

• Encashment /termination charge.

• Annual fund charge. Depending on the nature of the charges, plans will usually be of the:

• Front end charge type; or,

• Spread charge type.

Outline the three elements of ESG.

1. Environment: This focuses on a company’s carbon footprint, i.e. its use of fossil fuels, its impact on climate change, use of toxic chemicals in manufacturing, deforestation, health & well-being and its use of energy and water and waste discharge.

2. Social: The focus is on a company’s behaviour as an employer in its immediate and wider community, e.g., its equality, diversity and inclusion policy, labour relations, and practices related to hiring and promotions.

3. Governance: This focuses on how a company governs itself, its practices, controls and decision making e.g., executive compensation and bonuses, its culture, transparency, compliance and adherence with both the letter & spirit of the law.