Junior ISAs set to launch next week
Ahead of the launch of Junior ISAs next week, research shows that investing in certain investment companies over an 18-year timeframe can produce spectacular returns of more than 700%.
Research compiled by the Association of Investment Companies for Money Observer shows that six investment companies delivered returns of more than 700% over the past 18 years. The top performer was Gresham House, which returned a massive 1,927%, however it is now in the process of winding up.
Other investment companies that produced big returns include HgCapital (1,104%), Hansa Trust (786%), RIT Capital Partners (775%), TR Property (749%) and JPMorgan European Smaller Companies (745%).
JISA launch 1 November
JISAs launch on 1 November. Replacing child trust funds, they are available to children born on or after 3 January 2011, children under 18 born before September 2002 and children who don't already have a CTF.
JISAs allow parents to save up to £3,600 a year tax-efficiently towards their child's future. Parents can opt for a cash Jisa or stocks and shares Jisa, and the only tax that is payable is the 10% dividend tax on any share holdings.
The child will be able to access the money when they reach 18 years of age.
Looking at open-ended investment funds, the top funds over the past 18 years have not performed as well as the top investment companies. According to data analysts FE Analytics, of the 523 retail investment funds with an 18-year track record, the runaway leader was Jupiter European Income, which returned 739% over the period.
Other funds that would have given investors more than six times their initial capital include JPMorgan Natural Resources, up 652%; Halifax UK Growth, up 638%; Scottish Widows American Smaller Companies, up 607%; and Fidelity European, up 605%.
Pascal Dowling, investment specialist at FE, comments: "With an 18-year time horizon, parents can afford to take the higher level of risk associated with stocks and shares JISAs. Nonetheless, they will also seek the reassurance that whichever fund they choose has the potential to deliver good, consistent returns.
A diversified selection of funds run by established investment firms and experienced portfolio managers should enable parents to sleep at night."
He adds: "Past performance should only be the starting point for parents assessing the best funds for their JISAs particularly since many new funds have come to the market over the last 18 years."
The best performing Investment Management Association sector over 18 years was China/Greater China, up 385%. The UK smaller companies sector and North American smaller companies also performed well, up 342% and 278%, respectively. At the other end of the spectrum, the Japan sector lost money, falling by almost 13%.
This article was written for our sister website Money Observer
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.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.