Generation Development Group (ASX:GDG) - One Page Stock Pitch
Australian Investment Bond Provider
GDG is one of only 19 Pooled Development funds (PDF) in Australia, a special structure to encourage venture activity in Australian SMEs, and by doing so receive tax benefits on the income derived from these investments. Importantly this scheme is now closed to new applicants.
This is important as it is both a blessing in that the tax benefits are quite appealing and allow for tax-free dividends to be paid by GDG. But a curse due to the limited investments they can make and as such they have difficulty redeploying capital
With this in mind, the underlying business provides investment bonds to Australians looking for a tax-efficient vehicle (Second only to Superannuation) to compound their wealth. See the comparison between GDG’s ‘Lifebuilder’ bond to Superannuation below:
These bonds have some very appealing characteristics that make it a win-win for all parties involved. The main benefit of which is that instead of focusing mainly on reducing management fees, you can also benefit from reduced taxes. To illustrate this I will run through a quick example.
Say you wanted to invest into the popular VDHG Index fund, and can do so through either the ETF or Gen Lifebuilder. Both options charge a management fee of 0.29% p.a. However, GDG also levies a 0.40% administration fee. So we already start 0.40% behind, the question is, are the tax benefits enough to make up for that?
Well the answer is, it depends. As the investment bond is always taxed at 30% (Less credits) and the product provider actually provides for this on a yearly basis, withholding some earnings rather than reinvesting them for you.
You also lose some key personal benefits including the CGT discount, tax planning using the brackets and the ability to defer and compound pre-tax earnings. These are all extremely powerful compounding tools that I personally have intention to utilise to their full potential.
So who is this for? Well, it makes sense for an investor who will always be on the top tax brackets