STEPHEN CRANSTON: Be daring and take bigger risks when investing in venture capital projects
While investing in hotels is for conservative investors, KNF Ventures has a targeted internal rate of return of 40%
It might seem by reading the press that the section 12J tax benefit exists primarily to fund hotels. They are attractive to conservative investors with a limited risk appetite, since on top of a full tax deduction for the investment hotel operators are often prepared to give a guaranteed income yield of about 7%.
But it is also possible to invest in much more high-octane venture capital projects. If you have R1m to spare, and enough taxable income to get a R450,000 rebate from the SA Revenue Service, you could consider investing in KNF Ventures. The targeted internal rate of return is 40%. As section 12J requires money to be tied up for at least five years it lends itself to higher risk investments. Clients cannot sell the investment on in the secondary market, so they have to leave it in the bottom drawer untouched for five years.