Brendan Burgess
Founder
- Messages
- 53,761
This is similar to a unit-linked fund which invests in the top 20 shares quoted on the Irish Stock Exchange
Costs
Annual management charge: .5% per year to include all costs
Raised to .75% in April 2008 and now to a massive 1.9% from May 2009 - avoid this product
Ordinary stock exchange commissions to buy and sell
There is a small effective initial charge as there will be a spread for investors set by the market makers. ( currently between 2 and 5 cents on a unit value of €12)
ETFs must be held in a nomiee account or in a Crest account, so there will be charges associated with this also.
No stamp duty on purchase and sale. (There is stamp duty on the creation of the ETF in the first place, but most buying and selling will be in the secondary market i.e. “second-hand” ETFs.)
A well diversified investment
Good diversification Biggest shareholding is AIB which accounts for 20% of the fund. It should comprise 21% of the fund by value, but no share is allowed comprise more than 20% of the fund.
However, 55% of your investment will be in financial services between AIB,Bank of Ireland, Anglo and permanent tsb.
Possible small disadvantage: There may be a discount to the net asset value
Investors should note that the market price of a share in the ETF will not necessarily equal the net asset value per share. (From the NCB FAQ)
However, in the US the discount to net asset value is rarely more than 1%. If it were to exceed 1%, then the ETF could be wound up for the underlying assets.
Tax Treatment
Dividends will be subject to 20% tax compared to a top rate of 47%(including prsi) on dividends from directly held shares for most investors.
There is no further tax payable by a shareholder. The ETF is structured as a UCIT which is similar to a unit-linked fund, but has a slightly different tax treatment.
Profits on disposal will be taxed at 23% instead of the 20% CGT which normally applies.
No annual exemption as there is for CGT
I presume that losses on an ETF cannot be written off against gains for CGT purposes.
How to complete your tax return
Can I hold my investment in share certificates?
Investors who wish to deal in ETFs will need to have a nominee account or hold a Personal Membership Account in CREST
This is a serious disadvantage for long term investors who prefer share certificates.
It creates an element of risk which holding shares directly via share certificates does not have.
There are usually some costs associated with nominee accounts and Crest accounts. There are no annual costs in holding shares directly.
How safe is it?
Very safe. The company holding the assets is the ISEQ ETF Plc. Theoretically, you have a right to ask them to exchange the ETF for underlying shares. The underlying shares are managed and safeguarded by Bank of Ireland Asset Management.
I believe that recent court judgements in the Morroughs make holding Crest accounts more risky than holding share certificates.
Is this suitable for short term investment?
It will probably cost you around 1% to buy this ETF through your stock broker and a further 1% to sell them. So you would need to hold the shares long enough to overcome this 2% charge. This is fairly high compared to unit-linked funds with no initial or exit charges e.g. Quinn Life. So it costs 2% more initially to invest in an ETF, buy you save .5% a year. So an investment in Quinn Life would be better for the first 4 years. In practice, it would be better for only around 3 years, as the .5% quoted for the ETF is calculated slightly differently to the way unit-linked funds calculate their annual charges.
Should I buy shares directly or through an ETF?
[broken link removed]
Costs
Annual management charge: .5% per year to include all costs
Raised to .75% in April 2008 and now to a massive 1.9% from May 2009 - avoid this product
Ordinary stock exchange commissions to buy and sell
There is a small effective initial charge as there will be a spread for investors set by the market makers. ( currently between 2 and 5 cents on a unit value of €12)
ETFs must be held in a nomiee account or in a Crest account, so there will be charges associated with this also.
No stamp duty on purchase and sale. (There is stamp duty on the creation of the ETF in the first place, but most buying and selling will be in the secondary market i.e. “second-hand” ETFs.)
A well diversified investment
Good diversification Biggest shareholding is AIB which accounts for 20% of the fund. It should comprise 21% of the fund by value, but no share is allowed comprise more than 20% of the fund.
However, 55% of your investment will be in financial services between AIB,Bank of Ireland, Anglo and permanent tsb.
Possible small disadvantage: There may be a discount to the net asset value
Investors should note that the market price of a share in the ETF will not necessarily equal the net asset value per share. (From the NCB FAQ)
However, in the US the discount to net asset value is rarely more than 1%. If it were to exceed 1%, then the ETF could be wound up for the underlying assets.
Tax Treatment
Dividends will be subject to 20% tax compared to a top rate of 47%(including prsi) on dividends from directly held shares for most investors.
There is no further tax payable by a shareholder. The ETF is structured as a UCIT which is similar to a unit-linked fund, but has a slightly different tax treatment.
Profits on disposal will be taxed at 23% instead of the 20% CGT which normally applies.
No annual exemption as there is for CGT
I presume that losses on an ETF cannot be written off against gains for CGT purposes.
How to complete your tax return
Can I hold my investment in share certificates?
Investors who wish to deal in ETFs will need to have a nominee account or hold a Personal Membership Account in CREST
This is a serious disadvantage for long term investors who prefer share certificates.
It creates an element of risk which holding shares directly via share certificates does not have.
There are usually some costs associated with nominee accounts and Crest accounts. There are no annual costs in holding shares directly.
How safe is it?
Very safe. The company holding the assets is the ISEQ ETF Plc. Theoretically, you have a right to ask them to exchange the ETF for underlying shares. The underlying shares are managed and safeguarded by Bank of Ireland Asset Management.
I believe that recent court judgements in the Morroughs make holding Crest accounts more risky than holding share certificates.
Is this suitable for short term investment?
It will probably cost you around 1% to buy this ETF through your stock broker and a further 1% to sell them. So you would need to hold the shares long enough to overcome this 2% charge. This is fairly high compared to unit-linked funds with no initial or exit charges e.g. Quinn Life. So it costs 2% more initially to invest in an ETF, buy you save .5% a year. So an investment in Quinn Life would be better for the first 4 years. In practice, it would be better for only around 3 years, as the .5% quoted for the ETF is calculated slightly differently to the way unit-linked funds calculate their annual charges.
Should I buy shares directly or through an ETF?
[broken link removed]
