Fundisa (again)

Gregg — Wed, 19 May 2010 07:12:52 +0000

I have been a huge fan of Fundisa, having written about it often and having encouraged many of my clients to invest in it…however, after initially being a huge fan of the product, I have done some more work on it and as I see it, the big hurdle that Fundisa has is the underlying fund and its potential returns over a 15 year period…so much so, that I am questioning whether or not I can continue to support it.

Here is my thinking…

Following some basic maths, I calculated that the projected return using Fundisa would look something like this (assuming R200 from me + R50 from govt and a 10% per annum return – this also assumes no escalation on the contribution because the bonus is capped on the first R200).

Year	Fundisa
1	3 141
2	6 612
3	10 445
4	14 681
5	19 359
6	24 528
7	30 238
8	36 545
9	43 513
10	51 211
11	59 715
12	69 109
13	79 488
14	90 952
15	103 618
16	117 609
17	133 066
18	150 141
19	169 004
20	189 842

So after 10 years there should be ±R51000 in the account and by 15 years, ±R103600…

However, if I use a simple balanced fund and I put away R200pm, no escalation and I can get a return of 14% pa (which is the historical average return for this sector over 10 years) the results look something like this:

Year	Bal Fund	Fundisa
1	2 560	3 141
2	5 503	6 612
3	8 885	10 445
4	12 772	14 681
5	17 239	19 359
6	22 374	24 528
7	28 275	30 238
8	35 058	36 545
9	42 854	43 513
10	51 814	51 211
11	62 112	59 715
12	73 948	69 109
13	87 552	79 488
14	103 187	90 952
15	121 157	103 618
16	141 811	117 609
17	165 550	133 066
18	192 833	150 141
19	224 192	169 004
20	260 233	189 842

So for the first 9 years or so, Fundisa is a better prospect, however after that, it gets left behind. This is without any escalation on the debit order – which you would normally do and also assumes I use a balanced fund not an equity fund which would be totally appropriate over a 15 year period…

So we have a problem…Given that most people will start saving (via Fundisa) when their kids are very young and will therefore be saving for much more than 15 years, Fundisa is not as good as it appears and anyone using it would be worse off over anything more than a 10 year period…

To my mind, Fundisa needs to do the following to make it a really attractive option:

1. Fundisa needs to have an alternate (more aggressive) fund option such as a balanced or equity fund.

2. Fundisa needs to allow for bonuses on an escalation – this could be capped at 10% per annum.

Even if I escalate my contribution on Fundisa without the bonus increasing, I will still be significantly worse off than escalating the contribution on the balanced fund (without any bonus)…

I have written to ASISA re these concerns and will post their reply if we get one…Fundisa is a great concept, but in my opinion, it was not clearly thought through…

For now, I would hold off on new investments into Fundisa.

If it sounds too good to be true…

Gregg — Mon, 15 Feb 2010 06:46:34 +0000

Oh dear…the old adage certainly rings true (yet again). Following on the most recent post about Fundisa, a friend and I were re-doing the maths…seems like I got it totally wrong…apologies for that!

The returns seemed too good to be true – the problem is with my maths and understanding of how the product works…which raises some important issues that need clarifying by ASISA re the product.

I am just making sure of my maths this time and will update the figures as soon as I have them correct.

Bottom line is you wont get nearly close enough to a degree on R200 pm but I still think it is the best product around and still have 1 for each of my kids.

Watch this space for more info as soon as I have checked it (properly).

Gregg

The Financial Coach™ - Managing people & their emotions around money » fundisa

Fundisa (again)

If it sounds too good to be true…