Bonds for education

By THIS IS MONEY
Updated: 19:00 EST, 16 August 1999

Regular savers Rob and Debbie Benson plan to use the fruits of their investment to give their children a first-rate education.

They have three - Caroline, 11, and six-year-old twins Alex and Susie. 'Caroline has been accepted into a good grammar school but we would like to keep open the private education option for both her and the twins,' says Rob. 'We also need to consider the costs of further education, and our regular savings should help us do so.'

The Bensons, of Chorleywood, near Rickmansworth, Hertfordshire, save £350 a month in M&G's High Yield Corporate Bond fund through a maxi Isa. The income is reinvested.

Rob, 44, who works in advertising, decided to choose a bond fund because the couple already have some stock market investments and they wanted to diversify their portfolio.

'We didn't want to endanger the resources set aside for our children's education, so we wanted a relatively low-risk investment. Bonds seemed to provide that,' he says.

'Rather than move a lump-sum from one of our other investments, we decided to pick M&G's fund and start a new account from scratch. By investing regularly the money grows painlessly because it is taken from the bank account each month before we even notice.'

The alternative to a monthly investment is a lump-sum payment into a fund, which can pay handsome dividends.

For example, figures from the Association of Unit Trusts and Investment Funds show that £6,000 invested in the average UK All Companies fund would have grown to £11,837 in the five years to the end of July. But a £100-a-month contribution for the five years would be worth only £8,528.

However, when stock markets are volatile, dripfeeding £6,000 with 60 monthly payments of £100 may result in a bigger fund than can be achieved from a £6,000 lump sum.