SMSF - borrow to invest in ETF

Discussion in 'Superannuation, SMSF & Personal Insurance' started by apk, 20th Sep, 2021.

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  1. apk

    apk Well-Known Member

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    So far my understanding,

    - Members can lend to SMSF, to invest in ETF
    - Any unrelated party can lend to your SMSF, to invest in ETF

    Is there a option for the SMSF to borrow money to invest in ETF similar to the NAB Equity Builder product (this can be used outside SMSF)

    PS: I called NAB equity builder, I was told their product policy does not allow them lend to SMSF.
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    It is possible in theory, but I don\t know of any products. It would have to be done as a separate custodian trustee for every lump sum bought though.
     
  3. apk

    apk Well-Known Member

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    Thanks Terry
     
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  4. Hockey Monkey

    Hockey Monkey Well-Known Member

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    NAB Super Lever

    although the 5.25% - 5.75% interest rate is quite a headwind
     
    Last edited: 20th Sep, 2021
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  5. Ross Forrester

    Ross Forrester Well-Known Member

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    I have a vague feeling that there are some internally geared ETF's around. For a low dollar value investment these might be easier.

    You would need to talk to an investment advisor to see if the investment is right for you.
     
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  6. ChrisP73

    ChrisP73 Well-Known Member

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    @apk and if you think you might be able to do better with a related party loan, research super safe harbour rules thoroughly first.
     
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  7. MB18

    MB18 Well-Known Member

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    Self Funded Installment warrants might also be an option.

    I have never held them myself, but I think they may be marketed with SMSFs in mind.

    If you have never heard of them there is a couple of things to get your head around but in overly simple terms think of them as a leverged product with a non recourse loan attached (my understanding)
     
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  8. Gav

    Gav Well-Known Member

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    I have a vague feeling that there are some internally geared ETF's around. For a low dollar value investment these might be easier.

    If you go the above route take a good look at the fees charged on these products - the last one I looked at the fees OK, until I realised the fees were charged not on your investment, but on the leveraged amount - scary.
     
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  9. apk

    apk Well-Known Member

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    Thanks @Hockey Monkey had a quick look, this product has margin calls may be not suitable for me. Learned the lesson selling my CSL during GFC as a safety to increase my buffer due to employment contract uncertainty.
     
  10. apk

    apk Well-Known Member

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    Thanks @ChrisP73 sure will have a good read about LRBA and safe harbour rules.
     
  11. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Its actually difficult to do a related party lend and the limited recourse loans require some complex issues with assets like ETFs. You cant blend blend different ETFs etc in a bare trust. So the strategy is really a one stop strategy and is VERY limited. Definately a matter for complex advice and to be honest it has many holes. The Limited Recourse loan product has always appealled to property due to the "single acquirable asset" limit. Given a SMSF needs a investmnet startegy and should also diversify etc it is a hard issue to address. It could even enhance risk. Margin loans etc are not available to smsfs.

    Geared ETFs will also need a risk management statement and investmnet strategy and some policies.
     
  12. luckyP

    luckyP Well-Known Member

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    The NAB super level with 5.75% interest rate makes no sense. I crunched the numbers and I only come ahead after 5 years and if the market return 14% consistently over the life of the loan. Who would take this?
     
  13. apk

    apk Well-Known Member

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    yes I agree, 5.75% interest is high in this low interest rate environment.
     
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  14. Ruby Tuesday

    Ruby Tuesday Well-Known Member

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    Why not just invest in geared EFT's such as TQQQ, it has given a 100% return in the last 12 months and 400% in 3 years. you can also so invest in a geared bear EFT's. Structured products are another option not sure what the fees are now but you could get downside protection on 100% loans with put options and tax deductible limited recourse, 3 year interest in advance loans for less than margin loan interest rates. Like 10k could give 50k exposure. but you may need to watch out for performance hurdles.
     
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  15. luckyP

    luckyP Well-Known Member

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    The total return is good but how does it work? Will the price reset daily?

    TQQQ, as is the case with any leveraged ETF, is an instrument best used over intraday time frames, not as a buy-and-hold investment.3 Investors and traders that do not consider themselves “active” and “risk-tolerant” should eschew leveraged ETFs.
     
  16. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Beacuse a leverage ETF only increases VOLATILITY risk. You arent geared. It is. A auditor may want a risk management statemnet for the SMSF to detemrine how that magnified risk is to be managed. Leveraged hybrids DO NOT mimic a true market. in any natural way. eg a sharemarket can drop 200pts and a BEAR ETF may rise 50pts or 400pts. Then when you seek to quit it they can have moved apart fpr the abitrage between the two is actuially a loss.
     

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