Les says: I took out an education policy with FNB when my first two grandchildren were born but this policy was only for 10 years. I now have six grandchildren and they are all going to need help with further education. The first children will be finishing school in 11 years’ time.
I have just looked at the Fundisa fund but it looks a little limiting, and as it is in its pilot project stage there is no guarantee that I would get the bonus R600. Can you please advise me as to what would be the best way to help all the children, if possible?
Maya replies:
There are two ways to approach this. You can split the money into the names of the six grandchildren or keep it as a lump sum and set an amount that each child can receive when they matriculate.
If you split up the funds and parents contribute R50 per child, then Fundisa would be a good product choice, (see information below regarding your concerns about Fundisa). The reason is that it is difficult to find products that will allow you to invest only R50 a month. If you want flexibility there are unit trusts offered by the banks with low monthly contributions, but they have very high upfront fees.
The other positive of Fundisa is that if one child does not go on to tertiary education you can transfer that saving to another child.
If you invest the full lump sum then a unit trust or an exchange-traded fund would be a good option. The problem here, however, is that the parents would have to contribute R50 per child (total R300) and you would have to determine how much belongs to each child taking growth on the money into account. It is enough to boggle the mind.
The best solution is to split up the funds now and let each parent contribute accordingly. Initially, my thoughts were that you should give the older grandchildren a higher percentage of the lump sum as their money would not have the same time to benefit from the investment growth. However, the younger children will have higher education costs due to inflation so it should work out.
They will, however, receive less in monthly contributions than the other grandchildren over time, so perhaps you could provide them with a slightly higher lump sum equal to a year of parent contributions, for example.
Janet Nelof Fundisa replies:
While we understand Les’s concern, it will take exceptional circumstances to put an end to Fundisa. It has been well received by South African consumers and is exactly what this country needs to encourage savings.
Also, the money set aside for the bonus payments is significant. Bonus payments are made from the R31,1-million committed by the government and the collective investment schemes industry to the Fundisa fund.
However, to put Les’s mind at ease, should the Fundisa fund close at some point in the future, the bonus payments and the returns earned up to that point will not be lost. Should the fund be closed to new investors, the bonus money would continue to be paid to existing investors until the pool dries up. Investors could then be given the option of switching to another unit trust investment, taking the bonus payments and returns earned up to that point with them, provided the bonus money earned is used to pay for tertiary education.
It is important to remember that the Fundisa fund is a unit trust fund, which is regulated by the Collective Investment Schemes Control Act (CISCA). By law a unit trust fund cannot simply close and disappear.
How is your money invested?
The Fundisa fund is a low-risk fixed-interest income unit trust fund of funds administered by Stanlib. This means the fund invests in fixed-interest income unit trust funds, which in turn invest in bonds, fixed deposits and other interest earning securities.
The Fundisa fund typically delivers a marginally higher return than a money market fund, while being more accessible. Money market unit trust funds generally require high minimum investment amounts. The Fundisa fund would, however, always return less than an equity fund, because it is invested less aggressively. Given that investors are investing for a child’s education, the industry and government considered a more conservative investment approach most appropriate for now.
How does it work?
The Fundisa fund is open to investors wanting to save for the higher education of a South African citizen or permanent resident. A minimum investment of R40 is required. The investor can then choose to pay R40 or more every month or top up the investment when money becomes available.
An annual fee of no more than 1,25% (excl VAT) applies, which is taken from the return earned on the money invested. A maximum initial fee of 3% (excl VAT) may be charged, but only if the investment is made with the help of an independent financial adviser.
Currently, if the investment is made directly with Standard Bank, Nedgroup Investments, or Absa (the three companies currently offering the fund), or any of their agents, no initial fee is payable.
Anyone can invest in the Fundisa fund on behalf of a child. Investors do not need to be related to the learner being sponsored. Also, should the child decide not to study at a tertiary institution, the benefits can be switched to another child. The funds must, however, be used before the learner turns 35.
The mechanics of the fund are simple. When the learner is about to study at an institution, the unit trust company will issue a certificate. The learner takes this certificate to the institution, which then receives payment from the National Student Financial Aid Scheme (NSFAS) on presentation of the certificate.
Fundisa bonus payment
Investors in the Fundisa fund have their investment enhanced by 25% every year to a maximum of R600 per learner. So if you save R200 each month for 12 months in the Fundisa Fund, you will see the R2 400 saved grow by R600 to R3 000. Furthermore, the R3 000 will also share in the overall investment return achieved by the fund in the next year.
It is important to note that the bonus payment comes in addition to the return achieved by the Fundisa unit trust fund.
However, to ensure that the money saved in the Fundisa fund is actually used to pay for a child’s education, the bonus payment (or a portion of it) falls away if the investment is withdrawn. The bonus payments received can only ever be used to pay for a child’s education at a government-recognised institution such as a university, further education training college, or university of technology.
Investors can, however, withdraw their savings together with the normal returns on the capital at any time.
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