Unitizing Explained

Unitizing explained

Unitizing is a method used to as accurately as possible keep record of each investor’s equitable share in a pool of assets. It ensures that a new investor’s share is based on the price he joins the pool and investors in that pool shares pro-rata in the costs of that pool.

Example:

Day 1

Pool X starts at R1.00 per unit.

Investor A invest R100 000.

He therefore receives 100 000 units at R1.00 each.

The pool now has R100 000 available and purchase 7 Krugerrands at R13 700 each.

The pool has therefore R4 100 in CASH and 7 Krugerrands at R13 700 each totalling R95 900.

Day 2

Krugerrands are priced at R14 000 for the day.

Value of the pool:

Krugerrands: R98 000(7 x R14 000)

Cash: R4 100

Total value0 R102 100

Unit price: R102 100 / 100 000 (units) = R1.021/unit

Mr X value of pool = 100 000 units x R1.021 = R102 100.

Mr Z now invests R100 000 on day 2.

He receives R100 000 / R1.021 = 97 943.192 units.

Total units issued by the pool is now 197 943.192 units.

This clearly illustrates that Mr Z does not receive the same amount of units because the price of the Krugerrands went up.

The pool buys another 7 Krugerrands at R14 000 each totalling R98 000.

The pool now consists of:

14 x Krugerrands @ R14 000 = R196 000

Cash: R4 100 + R2000 = R6 100

Total: R202 100

Unit Price remains at R202 100/ 197 943.192 units = R1.021

Each member’s share is now calculated as:

FAQ-Unitizing-2

What is unitizing?

Unitizing is a method used to as accurately as possible keep record of each investor’s equitable share in a pool of assets. It ensures that a new investor’s share is based on the price he joins the pool and investors in that pool shares pro-rata in the costs of that pool.

With Goldsave you will be investing in a Gold Pool that is managed and administered by the company Xodus Gold Primary Co-operative Ltd. All investments are directly covered by physical gold that is kept as Knox Titanium Vault Company (Pty) Ltd, a privately owned vault.

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Explanation

Your investment will purchase units in the Gold Pool. There you can accumulate your investment or you can at any stage buy gold or silver to the value of your investment. You can also withdraw your investment in cash.

Why unitized pools instead of direct holdings in precious metals

Unitising gold, silver and cash in a pool has a number of advantages:

As mentioned earlier, the cost of getting in and out is reduced from over 5% to as little as maybe 0.15% per trade.

  • It accommodates any round amount without calculating exactly what must be paid for a gold or silver coin or bar, e.g., R100 000.
  • It accommodates small amounts (less than the smallest metal unit). For example, any amount allows the investor immediate exposure to gold or silver. Each small amount contributes towards the value of a gold coin or bar.
  • Withdrawal amounts in cash can be round figures. For example Member X’s value of his gold pool amounts to R45 678.98 and he wants to withdraw R4 500 ad-hoc or per month in cash. This is possible by redeeming the number of units totalling R4 500 in value.
  • Costs relating to insurance, safekeeping and administration are paid from the pool without involving the member. (The effect of this is to marginally lower the unit price.)
  • It makes switching between pools easy – for example, if Member X wants to switch R200 000 of his gold pool share into the silver pool, this is easily done by applying the wholesale price without necessarily selling any gold provided that the pool holds sufficient cash. [Cost 0.25%].
  • The commission payable as well as the reduced value normally associated with selling gold and silver is avoided.

Note that unitizing avoids cross subsidizing as a new deposit or withdrawal is executed at the unit price of the day.

Members options after investing

Withdrawal

Members may at any time withdraw units (partially or in full) by way of CASH, gold, silver or platinum from their respective pools or by way of a COMBINATION of CASH and PRECIOUS METAL. Since the derivative Trading Pool only trades in derivatives, members may only withdraw CASH from this pool. Withdrawals of gold, silver or platinum will be made at WHOLESALE price, unless the pool needs to liquidate some gold, silver, platinum or instruments to release cash. This could happen if a member or members withdraw or switch more than 5% to 10% of the value of the pool on short notice.

Should a member opt to withdraw (take delivery of) gold, silver or platinum, it can either be collected from our dispatch point in Pretoria or Johannesburg or be sent to the member by secure courier.

Switching

Members may at any time switch between the pools. Units will be redeemed in the pool from which the switch is made and units purchased in the pool to which the switch is made. [The cost of switching is 0.25% of the value of the units switched].
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Gold and Silver pools (i.e. the unit prices) are valued at the daily wholesale price (which is priced at around a 5% premium – e.g. 1oz Krugerrands – over the London PM Fix). A member therefore buys in and sells at this wholesale price. The admin fee and commission are added to this when buying in.

  • When buying elsewhere, buyers could be charged as much as 10% or more above the London PM Fix. Similarly sellers could be offered less than the London PM Fix. (i.e., if Mr X were to buy elsewhere at 10% over the London PM Fix, and sell at the London PM Fix, he would lose a 10% spread).
  • The biggest advantage of a unitized system is that it is highly unlikely that members will sell for less than wholesale price (i.e. London PM Fix plus 5%). As mentioned above, the cost of getting in and out is reduced from above 5% to as little as about 0.15% per trade. No other gold, silver or platinum dealer offers anything close to this.
  • Goldsave and Xodus is unique in South Africa, because its entire price structure is presented clearly to its members, and at the lowest end of what is available in the marketplace.
  • The FAIS (Financial Advisory and Intermediary Services) Act does not make provision for a unit trust to hold physical precious metals. In ignoring this method of investing in gold, silver or platinum, it deters access or exposure by investors to these precious metals. Goldsave has used this opportunity/vacuum to make use of these unitized pools. By buying units in the Goldsave pool held and administered by Xodus Gold, members receive up to 99% physical gold or silver.

What makes the Goldsave offering unique is that members are able to redeem their units for cash, gold or silver or any combination of these.

How safe is the investment?

PHYSICAL STOCK

The bulk of the gold, silver and platinum stock is kept at Knox Titanium Vault Company (Pty) Ltd (www.knoxvault.co.za). Knox has very high security standards of both vaults and security. Entrance to the vaults is controlled by eye recognition technology and has to be pre-arranged.

The members (in general meeting) of Goldsave in conjunction with Xodus Gold will, on a regular basis, decide to what extend the stock is to be insured against theft. Insurance is currently underwritten by Zurich on a first loss basis.

Visits to the vault are only:

1. to add gold, silver or platinum;

2. to withdraw gold, silver or platinum; and,

3. to audit the amount of gold, silver or platinum held in stock.

Any visit to Knox Vault must be attended by at least one Xodus member appointed by the Xodus Board and one person appointed by Xodus’s auditors. The auditors always check the quantity of all the gold, silver and platinum in the vault being opened.

Formal stock audits are performed at least once a year and are published on our website.

CO-OPERATIVE

This is a very secure business vehicle for holding members’ precious metal assets. The Co-operative has the right of possession, while members share ownership of the pools according to the number of units allocated to them. Therefore, creditors of the co-operative, if any, are not entitled to lay claim to any precious metals or cash that is being held on behalf of the members.

The Co-operative has no creditors apart from the bank for bank charges and the auditors. Its only liability is to the members for their units.

What can I purchase for the money available in my wallet?

This example is worked out with the following estimated prices on hand (see website for daily prices):

Gold at $1200 per oz
Silver at $16 per oz.
1 oz Krugerrand at R15 000
1/10th Krugerrand at R1 586
100 grams Silver bar at R900
1oz Silver coin at R300

If I have saved up R3 000 in my wallet, I can purchase the following combinations:

What-can-I-purchase-for-the-money-available-in-my-wallet

Option 3:

Take the R3 000 in cash which will be paid into your bank account.

Option 4:

Leave the funds in the gold pool. All funds/units are backed by gold to the value of your savings.

Income Tax

Income Tax

None, since no interest is earned and therefore income tax is not an issue to be considered – both as regards members’ interests as well as their membership fees.

Capital Gains Tax (CGT)

No capital gains or loss is realized when a member withdraws his member’s interest and takes delivery of his physical gold, silver or platinum. However, if a member should sell his precious metal afterwards, or withdraws in cash, capital gains or losses will result, in which case the member is liable to declare such gains or loss to SARS.

If a member should sell his member’s interest to a third party, capital gains or loss must also be declared to SARS. Goldsave has no CGT liability.

Value Added Tax (VAT)

No VAT applies to Krugerrands.

Silver and platinum are subject to VAT. Goldsave is not yet VAT registered. Xodus is VAT registered, and therefore will be entitled to claim back the INPUT tax on VAT paid for Gold bars, Silver and platinum purchases. This means that VAT refunds from INPUT tax can be used to buy more silver and platinum.

Should Xodus sell any silver or platinum VAT OUTPUT tax will be paid over to SARS.

If a member should take delivery of silver or platinum, the member will be charged VAT OUTPUT tax which will be paid over to SARS by Xodus. (If the member who withdraws his silver or platinum from the Xodus pool is VAT registered, he can claim a refund of any VAT paid as INPUT tax).

Costs and Fees

Xodus and Goldsave are a non-profit co-operative. Fees charged are used for paying costs associated with the administration, insurance and safekeeping of assets. Stock is bought at wholesale prices and NO margin is added. All costs are fully transparent. Please note that the fee structure below may be subject to change with thirty days’ notice. Any changes will be updated on our website.

Initial Payment:

R1.00 Share to become a member. The R1 will be deducted from your first deposit.

All Deposits and Debit orders

Administration Fee

Based on the gross amount of any deposit:

< R100 000 : 1.50%

? R100 000 : 1.25%

? R500 000 : 0.75%

? R1 000 000 : 0.50%

? R2 500 000 : 0.25%

(e.g., If a member makes a deposit amounting to R1 000 000, the total fee will be 0.5%)

Commission

A percentage as agreed between broker and member or applicant.

Switching between pools

0.25% of the value switched.

Withdrawals

No fee for cash withdrawals.

A high value courier (RAM) charge applies for the delivery of gold or silver to any place in RSA or globally. The charge is currently around R250 plus 0.4% insurance. If the value were to exceed R150 000 there would be an additional charge for an armoured vehicle. Non-RSA residents should contact us for information regarding deliveries off-shore.

Should you wish to collect at our dispatch point in Pretoria or Johannesburg, a nominal fee of 0.15% will be charged.

Ongoing fees

The underlying pools will contribute pro-rata (on value) to the overall cost of insurance, safekeeping and administration fees. Pools will not subsidise each other. Fees are generally around 1% p.a. for the Gold pool and 0.8% p.a. for the Silver pools.