A study fund is an intermediate-term savings instrument intended both for salaried workers and independent operators. The study fund was originally intended to serve workers to finance further education, however it is presently used mostly as a general intermediate-term savings channel. Workers who deposit money in a study fund are called "members". Every member has a separate account which records his deposits into the account, withdrawals from it, the yield on his investment in that study fund and the management fees charged to his account. The money in the study fund is invested in accordance with the legislative arrangement and the fund's regulations. The yield is divided among the fund members pro rata to their share in the fund's assets.
Following Amendment No. 3 to the Law of Control of Financial Services (Provident Funds), 2005, which converted the provident and compensation funds to pension provident funds, the study funds are given a special status. The study funds are in fact the only savings channel where it is possible to accumulate money for the intermediate term, and the only one where it is possible to take out a lump sum exempt from capital gains tax.
Types of Study funds
There are two principal types of study fund:
- Study Fund for Salaried Workers - a study fund in which a salaried worker and his employer deposit in parallel in the same fund. Education fund deposits for a salaried worker consist of up to 2.5% at the employee's expense, and up to 7.5 of the salary at the employer's expense. The employer's deposits in the study fund for an employee are recognized as an expense for tax purposes.
- Study Fund for Independent Operators - a study fund for members who have an income from a business or occupation. A member who is an independent operator may deposit in the study fund up to 7% of the annual deposit ceiling.
The deposits of an independent operator in a study fund are recognized as an expense for income tax purposes in accordance with the regulations.
Who Decides Where the Study Fund will be Managed?
Under the law, the members have absolute freedom of choice as to where the money in the study fund will be deposited and managed. This decision does not depend on the employer or on any other entity. This change obligates the members to exercise great discretion when choosing the entity who will manage their savings money.
