19 February 2021 by Massimo Fuggetta

The great opportunity of Alternative PIRs

Borsa Italiana, Made in Italy Fund

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In 2021 Italian savers have at their disposal an extremely cost-effective investment tool: Alternative PIRs (Piani Individuali di Risparmio – Individual Savings Plans).

Like the original PIRs launched in 2017, Alternative PIRs enjoy a significant tax advantage: exemption from capital gains tax after a 5-year holding period. Both also have zero inheritance tax.

The substantial incentive stems from the legislator’s desire to increase the share of Italian savings invested in small and medium-sized enterprises (SMEs) in the country, in order to favour and finance their growth. For this purpose, both original PIRs and Alternative PIRs must be invested for at least 70% in securities of Italian companies.

But there are two important differences between original PIRs and Alternative PIRs:

  1. In the original PIRs, only 5% of 70% – or 3.5% of the total – must be invested in SMEs. The rest can be invested in the top 100 stocks in the market – the top 40 included inthe MIB40 index and the next 60 included in the Mid Cap index.

In Alternative PIRs, on the other hand, the whole 70% must be invested in SMEs.

  1. In the original PIRs, the maximum possible investment is 30.000 euros per year.

In Alternative PIRs, on the other hand, one can invest ten times as much, up to a maximum of 300.000 euros per year.

Therefore, Alternative PIRs respond in a much more targeted and effective way to the goal of channelling Italian savings to the country’s SMEs.

There are currently about 370 companies listed on the Italian Stock Exchange, with a total value of about 590 billion euros. Of these, the top 40 in order of capitalization are included in the MIB40 index and have a total value of about 480 billion, or 81% of the total. The next 60 are included in the Mid Cap index and have a total value of 88 billion, or 15% of the total. So the top 100 companies represent 96% of market value. The remaining 270 companies are worth only the remaining 4%. These are the SMEs that most need the support of Italian savers. About half of them are listed on the main market and are worth around 16 billion euros, while the other half are listed on AIM and are worth around 6 billion:

Thus, the 3.5% allocated to SMEs in the original PIRs is roughly equivalent to their market weight. The original PIRs offer an incentive to invest in Italian companies, but, despite the dictates of the law, they are not specifically aimed at SMEs.

It is only with Alternative PIRs that the fundamental objective of the PIR Law is fully achieved. In Alternative PIRs, the entire 70% destined for Italian companies must be invested in SMEs. SMEs account for only 4% of the market value, but are almost three quarters of the total number of listed companies:

270 companies with a total value of about 22 billion. This is the universe on which Alternative PIRs will focus. By channelling Italian savings to listed SMEs, Alternative PIRs will make an essential contribution to financing their growth, enhancing their value and increasing their liquidity.

Solutions Capital Management (SCM) SIM – itself a company listed on AIM – has been the first Italian intermediary to launch a managed account line in Alternative PIRs in December 2020. For the management of the 70% invested in SMEs, SCM has appointed Bayes Investments as advisor.

Against this background, SCM and Bayes expect high returns for the Alternative PIRs managed line. Returns will be made even more attractive by the substantial tax advantage, which at the end of the 5 years will allow exemption from capital gains tax, which at 26% is equal to more than a quarter of the cumulative return.

To see first-hand the importance of the tax exemption, let’s assume an investment of 100.000 euros and an average annual return of 10%. At the end of the 5 years, the value of the investment will have risen to 161.051 euros, making a capital gain of 61.051 euros. If this were taxed at 26%, the gain would be reduced to 45.178 euros. The difference, equal to 15.873 euros, is the extra return resulting from the exemption. In percentage terms, the cumulative yield is 61,05%, compared with 45,18% for a taxed equivalent return. The extra yield is therefore 15,87%, or 26% of gross yield. In order to have the same return, a taxable investment would have to make an average annual return of 12,79%, i.e. almost 3% more per year.

With the new year, we would therefore like to encourage you to consider an investment in the SCM SIM Alternative PIR managed line, of which we summarize the significant advantages:

  • A high expected return from investing in the most attractive Listed Italian SMEs.
  • A substantial tax advantage, equal to 26% of the cumulative return.
  • Zero inheritance tax.
  • A contribution to the country’s economic growth, through financial support to SMEs that most need capital.

Here you will find the SCM SIM brochure.


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