Israeli Study Reveals Significant Value of Employee Study Funds

A study published by Bizportal highlights the substantial financial benefits of "Keren Hishtalmut," or study funds, for salaried employees in Israel, emphasizing that their value often exceeds initial perceptions. These funds are a significant employee benefit, with employers typically contributing 75% of the deposited amount. For every shekel an employee deposits, three shekels are added by the employer, up to a monthly salary cap of NIS 15,712 for full tax benefits. This means an employee earning the maximum contributes approximately NIS 393 monthly, while the employer adds about NIS 1,178.

The primary advantage lies in taxation: profits accumulated on these "benefited deposits" can be withdrawn tax-free on capital gains, provided the fund meets certain conditions. In contrast, profits in a regular investment portfolio are typically taxed at 25%. Over 15 to 20 years, this tax exemption can amount to tens of thousands of shekels.

Illustrative calculations show that an employee earning NIS 12,000 monthly, with full contributions, could accumulate around NIS 104,000 after six years, NIS 349,000 after 15 years, and approximately NIS 554,000 after 20 years, assuming a 6% annual return. Of the NIS 554,000 after two decades, NIS 288,000 represents total deposits, with the remainder stemming from investment profits.

For employees earning at or above the NIS 15,712 cap, the figures are even more impressive. After 20 years, such an individual could have around NIS 726,000, with roughly NIS 349,000 from returns alone. The tax savings on these profits approach NIS 90,000.

The article also stresses the importance of choosing the right fund and investment track, noting significant differences in risk, return, and management fees among various companies and investment options. Long-term performance (three to five years) is a better indicator than short-term results. While funds become accessible after six years, continuing to leave the money invested, along with ongoing contributions and compound interest, can transform a modest fund into one of an individual's largest assets, potentially reaching hundreds of thousands of shekels.