Parents betting on high-risk funds to secure their childrens’ financial future

13th November 2014

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When it comes investing for their children’s future, parents are opting for investment funds at the higher end of the risk spectrum.

According to statistics from broker Chelsea Financial Services the top-selling Junior ISA funds among its clients since the introduction of the tax-efficient savings and investment include M&G Global Emerging Markets, Newton Asian Income and Marlborough UK Micro Cap.

Commenting on the sales trends, Darius McDermott, managing director, Chelsea Financial Services, said: “It is quite clear from these statistics that our investors putting money in Junior ISAs are prepared to go into higher risk areas such as smaller companies, companies in recovery and emerging market stocks. Secondly, all of the top ten most popular funds are equity funds.”

The full top 10 are…

  1. Marlborough Special Situations
  2. Marlborough UK Micro Cap
  3. M&G Global Emerging Markets
  4. Rathbone Global Opps
  5. Liontrust Special Situations
  6. M&G Global Dividend
  7. Newton Asian Income
  8. Newton Global Higher Income
  9. Artemis Income
  10. Woodford Equity Income

Junior ISAs were made available to the British public on 1 November 2011 in a bid to encourage parents to save for their child’s future. A Junior ISA (JISA) is simply a version of the popular ISA but aimed at parents, guardians and grandparents who wish to save for a child’s future.

The main difference between the two is that with a JISA the annual contribution limit is £4,000 as opposed to £15,000 for an ISA. However, the ISA advantages of no capital gains tax and no further liability to income tax are the same.

JISAs are available for any child who is resident in the UK and was not eligible for the Child Trust Fund. In other words, children born before 1st September 2002, who are still under the age of 18, and any child born after 1st January 2011.

McDermott added: “Apart from the tax incentive, what really appeals about the JISA is the length of investment horizon – because JISAs can only be accessed at the age of 18, parents with very young children can take on more investment risk. Furthermore, record-low interest rates make the case for equities in JISAs even more compelling.

“Presently, cash accounts and 10-year gilts return either a derisory or negative real return on investments when you factor in inflation. Moving into higher-risk investments is a calculated risk with JISAs and looking at historical data equities have greater long-term potential for returns than cash.”

To give investors an idea as to how much could be saved on behalf of a child, Chelsea noted that a monthly contribution of £50, assuming 7% growth per annum, could provide a pot of over £21,000 over 18 years. A monthly contribution of £300 could grow to almost £130,000.

 

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