This too shall pass… The demise of the Fundisa scheme

Every so often an event occurs that reminds us of the brutal passage of time. Such was the case for this writer, when a media update from the Association for Savings and Investment South Africa (ASISA) landed in his inbox. “ASISA announces closure of Fundisa,” trumpeted the subject line. “What?” I exclaimed. “I attended the launch of this education funding initiative just the other day!” It turns out that the other day in question was way back in November 2007, and much water has passed under the proverbial bridge since.

Plenty of changes over the past 15-plus years

In fact, the Fundisa initiative even outlasted the association that launched it. “The Fundisa Fund is a joint venture between the Department of Education and the Association of Collective Investments (ACI),” reads my FAnews newsletter from the time. The ACI’s functions were assumed by ASISA when the latter was established in 2008. 

The Fundisa scheme offered a much-needed savings vehicle for lower income South Africans to save towards higher or tertiary education. It allowed parents or guardians to contribute as little as R40 per month toward a child’s education, with government weighing in with an annual bonus of to 25% of the contributions made in a particular year, limited at inception to R600. And one of the innovative features of the scheme was that investors could support any child, not just their own. 

In a media release announcing the winding up of the scheme, Leon Campher, CEO of ASISA, reminded us that Fundisa was launched at a time when funding options for students from lower-income households were limited. It was designed to incentivise investors to prioritise investing for a child’s tertiary education, using the unique bonus feature that we just described. “The bonus was, however, dependent on the money being used to pay for education at a public learning institution and is forfeited if the investment is withdrawn for other reasons,” writes ASISA. “The fund [also] applied a household income means test of R180000 for beneficiaries”. 

Briefly reflecting on levels of broker commission

Back in 2007 we observed that “brokers would probably give this product a miss” given the paltry 1% maximum allowed for broker commissions on the product. At the time the minimum R40 monthly contribution would have netted brokers around 40 cents… Upon reflection, the Fundisa initiative was never intended for an intermediated distribution channel, but rather as a nice-to-have extra which clients could use as part of their personal social investment strategies. That said, the commission paid on certain financial products remains an issue to this day, with brokers often wondering how they are supposed to support certain insurance and investment products when the monthly commissions do not even cover the cost of a phone call, let alone the time spent on advice. 

We wind the clocks forward 14 years and three months to reveal that the Fundisa education unit trust fund will stop accepting investments from the end of September this year, with the aim being to close the fund by end-March 2023. The fund has been closed to new investors since February 2018, when the Department of Higher Education and Training started phasing in its National Student Financial Aid Scheme (NSFAS). NSFAS offers fully subsidised bursaries for disadvantaged students from families with an annual household income of R350000 or less. Also in 2018, the Ikusasa Student Financial Aid Programme started providing bursaries to students from families with an annual income of R600000 or less. That does not mean that Fundisa was a total wash. 

According to Campher, some 10963 investors are still investing in Fundisa on behalf of beneficiaries from low-income households. These investors will be notified that the fund will close for contributions at the end of September 2022, following the 2022 bonus allocation. “Qualifying investors would have received their share of the 2021 bonus allocations of R1.2 million in January 2022, and we are giving them eight months’ notice that the Fundisa fund will be closing for contributions at the end of September 2022 to ensure that no one is prejudiced,” explained Campher. He added that investors who continue to make contributions until the end of September will also receive a bonus payment for the 2022 year. Fundisa has allocated R48 million in bonus payments to investor accounts since inception. 

What happens next?

The Fundisa Fund is a low-risk interest-bearing unit trust fund of funds administered by STANLIB and previously available from Standard Bank, Nedgroup Investments and Absa. According to Campher, each of these companies is exploring alternative options for investors, which may include: 

• Withdrawing the funds;
• Using the funds to start a new unit trust investment;
• Switching into another unit trust portfolio already in the Fundisa investor’s portfolio. 

“While we cannot force investors to use this money for what it was intended, namely to fund a child’s education, we hope that people will do the right thing,” concluded Campher. We share his hopes, but wonder how successful the individual Fundisa investors were in accumulating enough cash to fund tertiary investments. My guess is that most students will rather opt for funding from one of the government-funded options introduced since 2018. After all, the politics today has shifted towards free everything for all, especially in the field of education. 

Writer’s thoughts:
Financial advisers and financial planners spend a great deal of time assisting clients to save money towards their children’s education, and the products they recommend will no doubt require much higher monthly commitments than the low-income product discussed today. Did you have an opportunity to invest in or sell a Fundisa investment? And are you sad to see it go? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.

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