PAC Savings Plan Calculator

A PAC (Piano di Accumulo del Capitale), often translated as a "systematic investment plan" or "savings accumulation plan", is the standard Italian term for a dollar-cost-averaging investment strategy. It involves making regular, fixed contributions — typically on a monthly basis — into a mutual fund or an ETF. The calculation performed by this simulator takes into account:

• Monthly contribution net of any entry fees (commissioni di ingresso)
• Expected annual return net of the annual management fee (TER — Total Expense Ratio)
• Compound capitalisation of returns month after month

The iterative formula applied for each month is:

Where:

• C_m = capital at month m
• V_net = monthly contribution net of the entry fee
• r_monthly = (annual return − annual management cost) / 12

On the gross gain (final capital minus total invested), the Italian tax system applies a 26% flat-rate substitute tax (imposta sostitutiva) on capital gains, as established by Italian fiscal regulations. For Italian government bonds (BTP, BOT, CCT) and bonds from "white list" countries, a reduced rate of 12.5% applies. This calculator uses the standard 26% rate by default, which covers the vast majority of equity and corporate bond investments that expats typically hold.

DCA (Dollar Cost Averaging) vs Lump-Sum Investing (PIC)

When you have capital to invest, two fundamental strategies present themselves: DCA (Dollar Cost Averaging), which underpins the PAC approach, and PIC (Piano di Investimento di Capitale), the Italian term for lump-sum investing, where you deploy the entire amount at once. Understanding the trade-offs between these two approaches is essential for choosing the one that best matches your risk profile and financial goals.

DCA involves investing a fixed amount at regular intervals, typically every month. The primary advantage of this strategy is price averaging: when markets fall, the same contribution buys more fund units; when markets rise, it buys fewer. This automatic mechanism significantly reduces timing risk — the danger of investing your entire capital at an unfavourable moment, such as a market peak just before a downturn. DCA is particularly suited for people who receive a monthly salary and want to build wealth gradually, without having to make market-timing decisions that even professional fund managers struggle to get right consistently. For expats in Italy who earn a regular stipendio (salary), the PAC structure aligns naturally with the monthly pay cycle.

Lump-sum investing (PIC), on the other hand, means deploying all available capital in a single transaction. Historical data shows that, over long time horizons, lump-sum investing tends to produce higher returns than DCA, because the capital is exposed to market growth for a longer period. However, lump-sum investing carries a much higher timing risk: if you invest everything just before a significant market correction, the initial losses can be substantial and may take years to recover. For this reason, lump-sum investing is generally recommended only for investors with a high risk tolerance and a very long time horizon, or for those investing at a point when market valuations appear reasonable.

ETFs vs Actively-Managed Funds: Which to Choose for a PAC

The choice of financial instrument for your PAC is a critical factor that significantly affects your net return over time. The two main options are ETFs (Exchange Traded Funds) and actively-managed mutual funds (fondi comuni di investimento a gestione attiva). The cost differences between these two categories can have an enormous impact over the long term.

ETFs are passively-managed funds listed on stock exchanges that faithfully replicate a market index such as the MSCI World, the S&P 500, or the FTSE MIB (the main Italian stock index). Their primary advantage is their extremely low cost: the TER (Total Expense Ratio) for global equity ETFs typically ranges from 0.1% to 0.5% per year. They have no entry fees, no exit fees, and no performance fees. They can be bought and sold in real time during market hours, offering maximum transparency and liquidity. Most online brokers operating in Italy — including Directa, Fineco, Degiro, and Interactive Brokers — allow you to set up automated monthly ETF purchases at very low transaction costs or even for free.

Actively-managed mutual funds, by contrast, are run by a team of professionals who select securities with the goal of outperforming a benchmark index. This service comes at a significantly higher cost: the TER generally ranges from 1.5% to 2.5% per year, often with additional entry fees (1% to 3% of each contribution) and, in some cases, performance fees on top. Despite promises of outperformance, historical data consistently shows that the vast majority of active funds (over 80–90% on a ten-year horizon) fail to beat their benchmark index after costs. The TER difference between a low-cost ETF (0.2%) and an actively-managed fund (2.0%) may seem modest in a single year, but over a 20–30 year PAC it translates into tens of thousands of euros in lost returns due to compounding fees. This is why most independent financial advisors in Italy now recommend ETF-based PAC strategies over traditional bank-distributed funds.

Capital Gains Tax in Italy (Tassazione del Capital Gain)

The taxation of investment income in Italy is a crucial aspect to consider when calculating the net return of a PAC. The standard imposta sostitutiva (substitute tax) on capital gains — the profit realised when selling fund units at a higher price than they were purchased — is 26%. This rate applies to most financial instruments: shares, equity ETFs, mutual funds, corporate bonds, and deposit accounts (conti deposito). As an expat, this is the rate you will encounter on virtually all mainstream investment products available through Italian brokers.

There is, however, a reduced rate of 12.5% that applies to income derived from Italian government bonds (BTP, BOT, CCT) and bonds issued by countries on the so-called "white list" (a list of cooperating nations maintained by the Italian Ministry of Finance). For funds and ETFs that partially invest in government bonds, the portion of the return attributable to those bonds is taxed at 12.5%, while the remainder is taxed at 26%. The exact percentage of the preferential portion is periodically communicated by the fund management company.

An important aspect concerns the offsetting of capital losses (compensazione delle minusvalenze). If you realise losses from the sale of financial instruments in a given year, these losses can be used to offset future capital gains, thereby reducing your tax burden. Capital losses can be carried forward for a maximum of 4 years from the year in which they were realised. However, it is essential to know that income from UCITS-compliant funds and ETFs is classified as "redditi da capitale" (capital income) and cannot be offset with capital losses, which fall under "redditi diversi" (miscellaneous income). This fiscal asymmetry is an important element to consider when planning your investment strategy in Italy.

Finally, regarding the tax regime, most investors in Italy use the regime del risparmio amministrato (administered savings regime), in which the bank or broker acts as a withholding agent (sostituto d'imposta) and automatically calculates and remits the taxes owed on your behalf. The alternative is the regime dichiarativo (declarative regime), in which you must declare your investment income yourself in your annual tax return (dichiarazione dei redditi). For most expats, the administered regime is simpler and more convenient. If you use a foreign broker such as Interactive Brokers or Degiro, you will typically be in the declarative regime and will need to report your investment income via the Modello Redditi PF and the Quadro RW for foreign asset reporting (monitoraggio fiscale).

The table below illustrates the estimated net return of a PAC with a monthly contribution of €200, assuming a gross annual return of 7% (the long-term historical average for a globally diversified equity portfolio), a TER of 0.2% (typical of a low-cost global ETF), and the Italian 26% capital gains tax. All figures are net of taxes and management fees.