11 Mar The best way to get cash together for tertiary education
The Fundisa unit trust fund is a joint initiative between the department of education and the unit trust industry aimed at encouraging South Africans to save for their children’s higher education.
This fund can only be used for tertiary education once your child has left school. As government pays out a 25% bonus up to a maximum of R600 a year, this is a very attractive low risk option for investing for tertiary education.
How is your cash invested?
The Fundisa fund is a low-risk, fixed-interest income unit trust administered by Stanlib. Because it invests in bonds, fixed deposits and other interest earning securities, it is a very low risk investment.
The Fundisa fund typically delivers a marginally higher return than a money market fund, however, it will 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 when money becomes available.
An annual fee of no more than 1.25% (excl VAT) applies, which is taken from the return earned. A maximum initial fee of 3% (excl VAT) may be charged, but only if the investment is made with the help of an independent adviser.
If the investment is made directly with Standard Bank, Nedgroup Investments, or Absa, or any of their agents, no initial fee is payable. Anyone can invest in the Fundisa fund on behalf of a child. Also, should the child decide not to study, the benefits can be switched to another child. The funds must 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 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.