Johannesburg – Whether government’s education savings plan Fundisa is suitable for you probably depends on how much you can invest and how long you have until your child starts studying.
Fundisa is a savings initiative driven by government in partnership with various asset management firms including Absa, Nedgroup Investments and Stanlib.
Investors can put in as little as R40 per month and government will add a capped bonus subsidy of R600 a year, which will only be paid out if the money goes directly to a tertiary educational institution. This subsidy moves on a sliding scale, with the R600 payable if the investor opts to lay out R200 per month. An investor who chooses a smaller contribution will earn a smaller subsidy.
But financial planners, including a Fin24.com blogger, have been questioning the suitability of the Fundisa product as a longer-term savings vehicle.
As Greg Sneddon from financial planning firm the Financial Coach points out, an investor who makes the R200 a month contribution into Fundisa and then gets the additional R600 a year government subsidised bonus will see his or her savings grow to about R51 211 over 10 years .
This is roughly in line with what you would get if you had put your money into a slightly more aggressive balanced fund offering.
However, by Sneddon’s calculations investors who hold the Fundisa offering for a 15-year period would see returns of R103 618 versus R121 157 in the balanced fund - a difference of 17%.
If you took the policy out when your child was born and you assumed your child would be going into a tertiary institution at the age of 20, the difference grows to a massive 37%.
However, Fundisa has different characteristics to those of a balanced fund, contends Sizwe Ndebele, the head of bank channels and emerging products at asset management firm Stanlib.
The minimum investment of R40 a month makes it far more accessible to most South Africans than a unit trust.
Investors will pay 1.25% (excl. VAT) in costs every year, while costs in unit trusts, invested in shares, may be more than 3% (without taking performance fees into account).
"Fundisa is the best low-cost, low-entry option, particularly if one has an education goal," said Ndebele.
"I believe a lot of consumer education needs to take place to move mindsets from little or non-existent saving habits to investing in equity-based vehicles."
- Fin24.com