What are PACs? How do they work? What advantages do they have? Here you will find the main information to guide you in this world
One of the greatest difficulties for each type of worker is often that of being able to save money in order to be able to face life and its unforeseen events with more serenity. The purchase of a property or a house or the desire to enjoy a well-deserved retirement in peace: the reasons that lead people to save are many. But moving from the ideal to the factual may not be so simple.
One idea for saving can come from subscribing to a capitalization plan (PAC): in practice, you can decide how often and how much to allocate to investments which, if well managed, can lead to an increase in your savings over time. (SEE THE DETAILED PAC GUIDE HERE).
PAC: capitalization scheme
PACs are generally offered by banks or other financial institutions, but they can also be taken out securely online, and allow the saver to use their savings through periodic payments (monthly, bi-monthly, quarterly, half-yearly or even annual) with a default duration (from 1 to 40 years maximum). The employees of the selected instrument will invest on behalf of the saver who, with the duration of the plan, will also be able to choose the most suitable financial instruments to grow his assets.
PACs are an affordable investment even for those who don’t have large sums of money to invest immediately. The objective is to put money aside according to its availability and gradually over time, also obtaining a return. Therefore, the investment in PAC can be seen as saving for the purchase of something specific or to finance a certain project while for others it can be a means of saving in the long term, for example to have some sort of pension fund. complementary. The structure of the Plan may be modified over time depending on the needs of the investor, who may also decide to suspend the PAC: however, any unforeseen modification may have costs for the investor, who may have to pay penalties .
How much does a CAP cost?
In addition to the share allocated to be saved/invested, these funds also include the costs for their opening and for any early closing, as well as for their management and maintenance. Therefore, it is always good to find out in advance so as not to have any surprises in the future.
In reference to management fees, we also speak of fixed fees which are nothing more than a cost withheld from the amount of payment of each individual installment depending on the entity (expressed as a percentage) of these fees. This detail is particularly delicate and is a variable to be carefully considered because, for example, if the fees were particularly high, the saver might have an interest in reducing the number of annuities by grouping them into quarterly solutions or half-yearly.
A convenient choice could come from a very interesting alternative which is that of crowdfunding: in this case, expenses of this type can be avoided but greater involvement and a more active participation in the management of the money is required.
For example, Recrowd offers a real estate loan crowdfunding platform to allow investors and savers to participate in real estate projects in exchange for high returns. People interested in this investment model sign up with an entry fee from very low figures (usually from €250/500). Each project has a fixed duration and at the end of this period, all investors receive the amount invested plus the accumulated return. The annual yield is around 9-12%.
The advantages of a PAC
Coming back to PAC, once we know what the upfront costs may be and once the possible (usually minimal) risks from market fluctuations have been assessed, let’s focus on the benefits, which can be summarized into five macro-categories:
- The staggered payment of installments without requiring high initial availability
- Constancy of investments for effective and continuous savings
- Flexibility thanks to the possibility of deciding the frequency of the payments, the duration of the investment as well as the volume of the amount to be allocated to the plan
- The elimination of the risk typical of the seasonality of investments because here the payments are regular, avoiding fluctuations due to temporal factors
- The rationality of investments that derives from the fact that they are managed by professionals who do not get caught up in emotions or typical fashions of the moment. Without neglecting the possibility of joining investments already selected