Momentum Protected Index Plan (PIP)

This is a brand new fund offered by Momentum Wealth and does the following:

• Gives you 100% capital protection over a 3 year term.
• Participate in the growth of the JSE Top 40 index for the 3 years.
• Trades once a month and the current cap on growth participation is 35% after costs.

Why it serves a purpose?
The JSE is close to its all time high. A lot of investors do not want to venture into shares because they believe a correction is imminent, so they carry on making the mistake of keeping their longer term money in cash. This product provides them with an alternative to cash!

What I think:

• Let's say cash gives you a taxable 7% effective every year for 3 years. That is 4.2% after 40% tax for 3 years which is 12.6% for the period.
• Let's say inflation creeps up and settles on an average of 6% pa for 3 years. Then you should earn an 18% effective return over 3 years to break even.
• Clearly you lose money in cash!
• If you invest in Momentum's PIP, and the markets do perform, you get 35% return after 3 years. If they muddle through you might only get the cash rate (12.6%) and if they crash and burn, you get 0% return but all your capital back. You get anything between 0% and 35%.

So, the worst you can do is to not earn the after tax interest return on your capital if you stayed in cash, but you can also get 35% return if the JSE Top 40 companies recover as we all expect they will.

This is just a summary and there are some technical issues as well.

Conclusion: If you have R50 000+ which you want to invest for at least 3 years, rather invest in PIP than cash.