What is an investment provident fund?

A liquid savings product, which was first launched by the Ministry of Finance in 2016. The fund allows its colleagues to enjoy all the benefits of the provident fund, along with full liquidity for years.

Today, the product is a preferred savings alternative in relation to bank savings plans, which give the investor zero interest on his savings. The main purpose of the product is to be a worthy substitute for investing in banks, while making the capital market fully accessible to Amit. The fund allows the saver to withdraw the funds deposited after the age of 60 as a recognized annuity that is completely exempt from capital gains tax.

 

The benefits of a provident fund for investment

Today, the product is a preferred savings alternative among the savers and investors in Israel, due to several advantages:

  • The funds can be redeemed at the cash register at any time, when only 25% capital gains tax will be paid at the time of redemption.
  • Investment provident funds can be transferred from one body to another without costs and without prejudice to the member’s rights at any time.
  • You can switch between investment paths in provident funds for investment, at no cost and without prejudice to the member’s rights at any time.
  • After the age of 60 and drawing an annuity only, it will be possible to withdraw an annuity free of tax.
  • You can deposit up to NIS 72,000 per account. Once per calendar year, as of 2022. That means a family of 5 can make a deposit to 5 different funds each year for a total of NIS 360,000.
  • The fund does not charge additional management fees other than management fees for the accumulation. That means there are no additional fees for transitions between routes, withdrawals, etc.
  • In this product, the tax event is postponed until the day of the withdrawal, so that the member benefits from an interest-de-interest effect over the years.

 

Lamda experts’ tips for investment provident funds

  • Create a provident fund for investment for each member of the family at home – when we recommend a regular deposit in the HOC, in order to define the savings goals in advance according to the needs of the household.
  • We recommend to our clients to set up provident funds for investment, for a variety of goals in life: savings for academic studies, savings for the children’s Bar/Bat Mitzvah, savings for a trip abroad, for a car, for initial capital for an apartment, etc.
  • As humans we tend to reach a point in life where we need these funds and tend to take out a loan. In proper financial planning, the order is reversed, as we need to prepare for our goals in the right way, so that when we reach the right moment, we will have a security cushion by our side, which will allow us to realize our goals without taking unnecessary loans and dependence on the commercial banks.
  • For the self-employed among us, we would recommend generating additional savings in the CPF for investment at the same time as depositing for a pension product, since the savings in the CPF for investment is a type of pension plan, which can be withdrawn at any time. With the help of saving in another channel, we can increase our future pension.
  • To review the performance of our investment provident fund every quarter. Indeed, there are substantial differences between the cash registers that exist in the market, so it is important to choose the right cash register according to the member’s needs. For example: if we choose a savings account for a child who has just been born, we choose a high-risk account because our savings period is long.

 

What professional services does the Lamda Group offer, when it comes to investment provident funds

  • Investing in an investment provident fund.
  • Use of an investment provident fund for the purpose of building a strategy to increase the pension at retirement age.
  • Withdrawal of a recognized pension from a provident fund for investment.