Child trust funds - one year on

By DAILY MAIL REPORTER
Updated:

 

CHILD Trust Funds celebrate their first birthday today. And parents who put their minimum £250 voucher into shares on April 6 last year have seen it grow to more than £300, against £262 in a cash fund.

Nearly half a million parents who have failed to open accounts have so far cost their children more than £50 profit.

Parents have the choice of picking a fund that invests in shares - where the value can go up and down - or putting it into a bank or building society cash account. And they can switch between them.

Those who choose to use funds investing in shares have had a bumper year and are the clear winners to date.

And those going for the riskier end of the market - smaller companies around the world rather than steady UK companies - have done even better. The F & C Global Smaller Companies investment trust has turned the £250 into £372, a 49% gain.

Even those sticking to the less risky end of the market have done well. The FTSE 100 share index, which measures the prices of the largest 100 UK companies, has risen by 23% over the past year, boosting money invested there.

This has given a much better return than leaving the money in a cash account earning a much lower 4.75% to 6%. It does not always work like this - and picking shares means taking the risk that the value of the investment will fall.

Independent financial advisers recommend investing in funds that hold shares picked by professionals. They should give you a better return than cash over the 18 years.

Cash savings accounts have proved popular with parents. Abbey reports that 66 out of every 100 accounts have gone into cash. Nationwide figures are similar, at 60 out of every 100.

It is important to pick the right fund. A £250 sum invested in the HSBC Growth & Income Fund - one of those recommended by independent financial advisers Hargreaves Lansdown if you want a stakeholder child trust fund - has grown to £320 over the past year.

The fund, available through branches, invests in UK companies. As a stakeholder fund, the charges are limited to 1.5% a year of the total value of the fund. The money will be invested in shares or a mixture of shares and bonds.

The Family Investments plan, where your money goes into a fund managed by respected managers New Star, is recommended by independent financial advisers Bestinvest for those looking for a stakeholder fund.

It invests 60% of the money in shares and 40% in bonds and has turned the £250 into £300.

Non stakeholder choices include the Invesco Perpetual fund, on offer through Children's Mutual child trust plan, which is up at £310.

• SPECIAL REPORT: Child trust funds

Maneesh and parents

SUE JEPSON and Narinder Dhillon, from West London, have a ChildTrust Fund with Family Investments for their 13-month-old son Maneesh.

Sue, deputy head of a primary school, says: 'We originally opened a cash account with Nationwide, where we already have a savings account, as soon as we received the voucher. We then did some research about where we ought to put it. We decided shares should be better over an 18-year period so we switched to Family Investments.

'It was easy. We just phoned up Family Investments and they took care of it.' Sue and Narinder have decided not to top up the Child Trust Fund on a regular basis, but will put in birthday and Christmas presents and any other money Maneesh receives.

Sue adds: 'Family Investments make it very easy for relatives to add to the account on special occasions. If you add the full £1,200 each year, the fund could be worth £30,000, and that is a lot of money for an 18-year-old to have.We are saving into a separate account to pay towards his education.'

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