JOHANNESBURG (Reuters) - South African tycoon and chairman of PSG Group Jannie Mouton has been diagnosed with early onset dementia, he said adding that he was still fit to be serve on the board of the investment heavyweight.

Founded by Mouton in 1995, PSG has enjoyed success by betting on high-growth companies challenging entrenched actors in finance, private education and hospitals in the post-apartheid economy.

"I have recently been diagnosed with an early form of dementia," the 70-year old Mouton said in an letter to shareholders on Tuesday.

"The implication of this is that my short-term memory does not always function as it should, the result being that I sometimes forget people's names, repeat myself, or may appear somewhat disorientated."

Mouton, who owns about 22 percent of PSG, said he would however stay on as chairman of the 50 billion rand (3 billion pound) company, and his team of doctors and advisors will monitor his condition.

"After consultation with my senior colleagues, we feel that I still have a contribution to make as PSG Group's non-executive chairman."

One its biggest plays is Capitec, a financial startup whose inroads and stock market outperformance against South Africa's big four banks have led to Mouton being compared to U.S. investor Warren Buffett.

Shares in PSG, which have risen almost 10-fold since 2011, were down about 1 percent at 222.90 rand as of 1156 GMT, lagging a slightly higher JSE Top-40 index <.JTOPI>.

"He is a respected figure in the financial industry but this announcement is indication that he doesn't have many days as PSG board member," said Wayne McCurrie, a portfolio manager at Ashburton Investments.

(This version of the story refiles to fix spelling of Buffett in paragraph 7)

(Reporting by Tiisetso Motsoeneng, editing by Louise Heavens)