Join digital stokvel for smart, new investing

A smartphone is all you need to to invest through Franc, a new app that gives investors access to low-cost funds./123RF
A smartphone is all you need to to invest through Franc, a new app that gives investors access to low-cost funds./123RF

If you're looking for a simple and cheap investment, there's a new offering on the market that is accessible to anyone with a smartphone.

Franc, which is being billed a "digital stokvel", gives its members access to a money market fund and an exchange traded fund (ETF) via an app.

A money market fund is a unit trust fund that targets returns higher than savings in a bank account, while the ETF is a passively managed fund that tracks a basket of shares or bonds or an index.

The funds you can access through Franc are the Allan Gray Money Market Fund, which has returned an average of 7.87% interest over the past year, and the Satrix40, which is an ETF that tracks the performance of the top-40 largest companies listed on the JSE and has delivered a return of 16% a year (or 43.13% in total) over the past five years.

Although past performance is no guarantee of future performance, these returns give you an idea of what you would have earned after fund management fees had been deducted.

The Allan Gray Money Market Fund attracts an asset management fee of 0.29% a year and the Satrix40 charges 0.25% a year.

Franc has no minimum investment amount, you can withdraw or transfer your money any time without a penalty and, besides the asset management fee, the only fee you pay to invest is a membership fee.

You should, however, remember that if you invest in an ETF like the Satrix40, your investment is subject to the volatility of the share market and may lose money before it earns money.

So it is better to use a money market fund to invest if you plan to withdraw shortly after investing.

The cost of using Franc is a R5 monthly membership fee which applies after the first six months of membership. Members can get another six months free for every friend they invite who becomes a member.

Dr Thomas Brennan, the founder of Franc, says the membership fee is the only charge, which could make Franc the most affordable way of accessing the money market and ETFs like Satrix40.

Franc uses EasyEquities, which is a share-trading platform that enables investors to invest in fractions of shares. EasyEquities does not charge a platform fee, but transaction fees do apply.

However, these are distributed between all the members who contribute to Franc, Brennan says.

There are a number of ways you can buy Satrix ETFs and even Satrix unit trust funds, but if you access the Satrix40 through the SatrixNow platform, offered by Satrix in partnership with EasyEquities, there are no minimum investments and the fees are low.

Jenny Albrecht, the chief operations officer of investments at Satrix, says if you were to make a once-off investment of R100 in the Satrix40 ETF through the SatrixNow platform, the total cost to you would be only 38 cents (or 0.38%) because there is no annual or monthly platform fee. If you set up a recurring investment, pay an extra 0.10%.

SatrixNOW investors can also sell their investment at any time, because there is no minimum holding period, she says.

Albrecht cautions investors to consider how a fixed fee of R5 a month could impact your investment. Whatever you pay in costs could have been invested. You should work out your costs as a percentage of your investment, and seek to pay as little as possible.

For example, if you were investing R100 a month, and your total cost to invest was R5, that's 5%, which is not insignificant. If you were investing R50 a month, R5 is 10% of the amount you're investing, and it is a whack.

Brennan says Franc's ambition is to never charge members the R5, which is why you get your first six months free and six months free for every friend who joins.

"Therefore Franc members who invite friends to join will effectively pay 25c per R100 invested in Satrix40, bearing in mind that members can also access Allan Gray Money Market with no minimum requirement and so will pay only 29c per R100 invested in Allan Gray Money Market.

"The power of Franc lies in the power of community. Investors using Franc share the transaction costs," Brennan says.

"If you have 10 people who put R100 into Satrix40 every month, instead of 10 people paying transaction fees individually, the transaction costs are shared and [in that way] you lower the cost to the individual investor.

"The intention behind Franc is to build a community of investors who are incentivised to grow the community by inviting others to join the stokvel.

"As the community grows, we aim to offer Franc members access to investments with better terms at lower cost.

"We want to make investing simple and affordable for anyone with a smartphone. Financial services usually offer complex products with high fees, which reduces the value for the consumer, especially over the long run."

Long-term view is central to investing

When you put money aside for future use, you're saving. Your objective is to preserve money for a specific goal. But when you invest, your objective is to earn a return.

Most people need to do both.

For example, you would save for a car or a holiday - so that you don't have to use credit.

When you invest, it's usually over the long term - five years or more - and there are many reasons to invest.

For example, rather than paying rent, you may want to invest in a property, which should appreciate in value over time. You may invest for a child's tertiary education or invest for your retirement.

When investing, you put your money in "assets" that appreciate in value over time. Property is one of the asset classes, and shares - or stocks - is another.

There are risks associated with every type of investment, but that should not put you off investing. The investment industry is regulated and some investments are very low risk.

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