Gross Funds Vs Net Funds

Stupid question to ask. Can anyone explain the difference between a gross fund and a net fund. I think it has something to do with the tax treatment but could be wrong.

Moved from .

Net funds have tax deducted on growth as it is earned and this deduction is reflected in the daily unit price. Gross funds do not and it is only when you encash them that 23% exit tax is deducted from any growth earned.

Thx Clubman

Apologies for incorrect location ....first time poster

Arises because of a change in the tax laws

All funds are gross now as far as I know and you can't buy into an older net fund

capall said:

All funds are gross now as far as I know and you can't buy into an older net fund

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Are you sure? I thought that you could still buy into some net funds? EBS used to offer both net and gross funds at the same time up to recently.

No I'm not sure ,maybe its only funds set up since the change which must be gross but all the old funds can roll on indefinitely taking new investors ?

capall said:

No I'm not sure ,maybe its only funds set up since the change which must be gross but all the old funds can roll on indefinitely taking new investors ?

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Correct - if you have a life assurance policy issued pre 2001, for instance, you can still pay in new money to the net fund.
I'm not aware of any reason why you should prefer net over gross though

John J said:

I'm not aware of any reason why you should prefer net over gross though

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In some cases (usually depending on the timeframe involved) the different tax treatment of one over the other can be advantageous from an investor's point of view. I recall this being discussed on AAM when gross funds came in first but that's a while back now so the thread(s) may not exist.

Under the gross method the full amount of the gain is reinvested under the net method tax is deducted each year so you have less available to reinvest
Even though you pay tax on the gains when exiting the gross funds do you not have the benefit of the tax amount being invested for the years before encashment ?

When I used to be invested in EBS summit funds and a new net tax system came out , they gave me the option of remaining in the old net fund or transferring to the new gross fund. This was at least 4 years ago but they did projections of returns under each taxation system and the result I remember being that its always better if you remain invested long term (10 years) to be in the gross roll over fund. However if you are a short term investor (about 5 years) its better to remain in the net fund.
This is further complicated by the new rule where its taxed every (i think) 7 years ? But when there were only 2 choices between gross or net that was the situation
I'm glad I stayed in the net fund as I cashed in all my money with the EBS (medium term at a profit) because regardless of the tax situation, another factor is the professionalism of the people you entrust your money with.