Best Junior Isa Investment Company 2015
Cash savings accounts work well for people who cannot entertain any risk to their money or for people who are saving for a short timeframe – but the rates of interest they pay are particularly low at present. For longer-term savers who wish to see their cash grow to a sizeable pot that gives their offspring more options, a stockmarket-linked product can be more suitable.
Anything equity-related carries risk, of course, meaning you could see some volatility in the years you contribute to this type of investment. But if you are investing for the long term or have at least a 10-year time horizon, you should have plenty of time to ride out any volatility in the stockmarket.
Investment companies (also known as investment trusts) are a great way of investing for children because they tend to have lower charges than unit trusts. According to the Association of Investment Companies, paying £50 a month into the average investment company would typically earn a child £27,734 over 18 years. By comparison, the same sum invested in our winning cash account would earn the child just £12,684.
Many investment trust companies run Junior Isa schemes, which allow parents to invest on their children's behalf across a range of trusts (and often funds too) at affordable levels, whether you're investing small monthly or a small lump sum.
We asked experts from four Accredited Financial Planning Firms to help us judge this and the following award: Keri Carter of Broadway Financial Planning; Jamie Donald from Donald Asset Management; Gareth Rees of GEM & Co. Financial Services; and Gordon Wilson from Carbon Financial Partners.
The winner in this category is the JPMorgan Asset Management Junior Isa, which offers access to more than 70 JPM trusts and funds on minimum investments of either a £100 lump sum or £50 a month. Our panel of judges liked its low charging structure, which Rees said "allows long-term investors to keep more of their returns".
Jamie Donald added: "It's very competitively charged with an excellent low lump sum investment amount option from only £100." However, he added: "While the plan provides access to a pretty decent array of JPMorgan funds, you are unable to access any other provider's investments so this would limit your future flexibility."
Fidelity's New Junior Isa is runner-up in this category. It offers access to hundreds of funds from 75 different managers, with minimum contributions of £50 a month or a £500 lump sum.
Donald said: "A fine array of investment funds from multiple different companies allows the investor flexibility for the future. Its website is also easy to navigate and the fund selection tools relatively easy to understand. With the company's strength in the market, this is a plan you can be confident in for the longer term."
Best Junior Isa Investment Company 2015
Winner: JPMorgan Junior Isa
Choice of funds: Over 70 JPMorgan trusts and funds
Minimum investment: £50 a month or £100 lump sum
Contact: 0800 020 40 20 jpmorgan.co.uk
Highly commended: Fidelity New Junior Isa
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.