Investors who came in to assess their equity today were in for a surprise. The value in investments probably fell from yesterday to today. The doubt was even greater, as the most significant loss occurred for those who were more conservative and invested only in fixed income funds. I explain below the reason for the probable fall of its portfolio.
On the last business day of November and May, the Federal Revenue anticipates the payment of IR at the minimum rate for investments in fixed income, multimarket and foreign exchange investment funds. The method of collecting this IR promoted the nickname that this charge received, that is, eat-quotas.
Reinforcement, this IR payment is not additional to what is already due, but just an anticipation. Thus, in the future, you will only pay the difference in income tax, if any. But, your gross income from income tax will look worse this month. I explain the reason.
As the tax is being charged before you redeem it, then the way to collect the tax is by reducing the number of quotas, hence the nickname eat-quotas. Thus, you will have an erroneous perception that the profitability of the months of November and May are very low when calculated as the difference between the value you own in that month and what you had in the previous month.
However, if you calculate the return by net profitability, or evaluate the profitability that each asset in your portfolio provided, you will understand the reality.
How much should I expect my portfolio to decline?
The portfolio’s expected drop depends on two factors: what proportion of its portfolio is in investment funds subject to collection and how much these products yielded in the semester.
Investments in funds that have a long-term profile, that is, those whose securities portfolio has an average term of over 365 days are taxed at a minimum rate of 15% on earnings and those classified as short-term are taxed at the rate of 20%.
For example, consider that at the end of May you had 100% of your BRL 100,000 portfolio in fixed income funds and these yielded 100% of the CDI in the semester. The CDI appreciated 6.5% in the semester, between May and November.
Thus, the return in Reais related to these funds was approximately R$ 6.5 thousand. That was your gross income tax on the investment.
Assuming all funds are in the long-term category, the quota eat-in rate is 15%. So, you paid at the close of yesterday the amount of R$ 975.
The relative drop is large.
Note that this advance income tax amount represents almost 1% of your current equity. Therefore, it is as if you handed over the profitability of one of the six months to the government.
Which applications are free of quota eaters?
Direct investments in fixed income securities, fixed income funds exempt from IR, shares, equity funds and real estate investment funds are free of charge. Investments in private pension products, whether of the VGBL or PGBL type, regardless of whether they are fixed income or not, are also exempt from this anticipation of IR. Income tax-exempt funds such as incentivized debenture fixed income funds also do not have quota eaters.
Is the quota eater as bad as they say?
The anticipation of the IR causes you to stop earning profitability on what you owe the government. However, the benefit of the absence of quotas only becomes significant in very long investment terms, that is, more than 10 years.
Therefore, there is no reason to go around changing your portfolio simply to not pay the IR advance. Consider that most of the times the application that is subject to quota eaters promotes greater liquidity and security than another without quota eaters.
Michael Viriato is an investment advisor and founding partner of Investor House
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