Austock Group Limited (ASX: ACK) is an ASX-listed small-cap company. Seemingly complex, risky and unusual, I think it could be worthy of a closer look.
Austock share price
As I explained to a friend this morning, to understand Austock's business you need two things:
- Time to do research: because it is a different type of business (i.e. a life insurance business)
- An ability to understand the product it sells
The product it sells is called an Investment Bond (also known as Imputation Bonds and Insurance Bonds). Investment bonds allow someone, like you, to invest money in a way that can be surprisingly tax-effective.
(yawn)
Please, bear with me.
An investment bond can be started with $2,000. You invest that money in the 'bond', which is its own tax payer. Inside the bond, you can invest the money into leading managed funds like Vanguard, Magellan, Perpetual and so on. That means, after fees, your money can grow. Austock charges a percentage fee for offering the bond.
But here's the good part: After 10 years, you can withdraw the money tax-free.
So, you put $2,000 in the bond. Invest in a fund. It grows. It pays its own taxes. And after 10 years you can withdraw the proceeds.
There are some other important rules, but you get the general idea. Money goes in. It can be tax effective (especially for those with high incomes). Money comes out.
Austock isn't the biggest company in the space, but it is arguably one of the two most innovative.
3 reasons I like it
- Super rules are changing. Superannuation is the ultimate tax friendly environment. But it's too tempting for the Government's Winnie The Pooh fingers. With the Super honey pot constantly being stirred up, investment bonds are making a comeback.
- It sounds complex. Austock sounds complex. That scares away most investors. But if you put in the time, you will realise it is a pretty simple business.
- It is growing. Austock is innovative and growing. While the industry was dormant and focused on Super, Austock was marketing and investing in itself. Now, the tides are turning and this boat is floating higher. And if you think about it, the older the bonds get, the more they grow and the more investors like you will add to your balance. That's good for you and Austock!
Foolish Takeaway
Austock is a risky $100 million business. It faces legislative risk, market risk, competition and all sorts of potential problems. However, I think it is worthy of closer inspection by long-term-focused investors who are willing to do some extra research and take a small position.
