/ 25 March 2010

Savings for your grandchild’s future

I have a one-year-old granddaughter and would like to save money on a monthly basis for her. I have about R150 per month for this. Where do I start? asks Simon

Maya replies: If your goal is to save for her tertiary education, then the Fundisa fund is by far your best option. This is a joint initiative between the government and the unit trust industry. The government tops up your annual savings by 25% up to a maximum of R600 per year. This means you are guaranteed a 25% return before even the returns in the underlying investment, which is in fixed interest (cash and bonds). There is no other product in the market that can guarantee these returns. Because the bonus is capped at R600, the optimal monthly investment is up to R200, and the minimum is R40 per month. However, she will only be able to use the funds for her tertiary education and not her “gap” year. For further information you can go to the website www.asisa.co.za/fundisa. Note that the website fundisa.co.za is NOT related to this product

If you want something more flexible, there is little that beats the Satrix range of investments for a no fuss, low-cost, long-term investment for children or grandchildren. My personal favourite for my children is Satrix RAFI (it tracks the performance of the top companies in South Africa based on their relative valuation).

The problem, however, is the minimum debit order. Most investments require a minimum debit order of about R300, which is very frustrating. The reason for the high minimums is that for lower amounts the administration costs become prohibitive as a percentage of the investment. That said, unit trusts offered through the banks (FNB, Stanlib, Absa) do have lower minimum debit orders of about R100 to R200, but the initial fees are high. You could invest in these and accept that the first 5% goes to fees, so you will only see real returns the following year. Alternatively you could save the money in a bank account and transfer R1000 at a time into an investment like Satrix. www.etfsa.co.za is a good site to find out more about Satrix and other exchange traded funds.