Best investment Junior Isa 2014
Cash is a great way of saving for an Xbox 360 or holiday spending money, but if you've got bigger targets in mind such as university fees or help buying a first home, then you are more likely to achieve those goals with equity-based investments.
While there will invariably be some risk, over a period of 10 years or more an investment in stocks and shares should give you higher returns and you have time to ride out a few stockmarket wobbles along the way.
Figures from the Association of Investment Companies (AIC) show that £30 invested monthly in the typical investment trust would be worth £15,989.84 (less charges) after 18 years - the same sum invested in a market-leading cash Isa paying 3.25% would be worth just £8,749, according to the Money Advice Service.
Many investment trust companies now run Junior Isas, which provide access to a range of investment trusts and in some cases unit trusts, too - offering a cost-effective way of investing and tax-free growth. Moreover, you can pay in occasional lump sums or make regular monthly investments.
In this category - which was selected by a team of investment trust specialists - we asked our judges to focus not just on the quality of investments offered but also charges and minimum investments levels to ensure our winner was affordable.
The judges' favourite this year was once again the JPMorgan Junior Isa. It offers access to a huge variety of managed funds and investment trusts (from a variety of management companies), as well as company shares.
Judge Gavin Haynes, managing director of Whitechurch Securities, says: "This is an excellent choice for building up a stocks and shares junior Isa, with a wide choice of investments available. You can invest £50 a month or a £100 lump sum and you pay no annual account fees. You can also monitor your child's investments online through an easy-to-navigate website."
The runner-up was Alliance Trust. Judge Tim Cockerill, head of collectives research at Rowan Dartington, says: "Alliance offers by far the best range of investment trusts to invest in, which makes them ideal for those investors who want to be more active in managing their accounts."
Best investment junior Isa 2014
WINNER: JPMORGAN JUNIOR ISA
Choice of funds: Wide variety of funds and trusts, externally and internally managed plus individual shares
Minimum investment: £50 a month or £100 lump sum
Contact: 0800 731 1111
HIGHLY COMMENDED: ALLIANCE TRUST
Available from 1 November 2011, the Junior ISA will replace child trust funds (CFTs), which have been phased out. Junior ISAs will have a £3,000 limit and will be offered by high street banks, building societies and other providers that currently offer ISAs to adults. You can invest in either stocks and shares or cash. But, unlike CTFs, there will be no government contributions into each child’s savings pot. Money invested in Junior ISAs will be “locked in” until the child is 18, and the ISA will default to an adult one.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.