Which stockmarket Child Trust Fund?
|Kids | Child Trust Fund
Asked by clueless, submitted
21 September 2009.
I've just had a child, and think I'd like to invest in an equities-based CTF, but am confused about which is better -- stakeholder or the other one that's not cash. They seem to be pretty much the same thing -- can you help?
Answered by Justin on 22 September 2009
There are two types of Child Trust Fund (CTF) that can invest in the stockmarket: stakeholder and non-stakeholder.
While they can be similar, there's two key differences:
1. Stakeholder CTFs may only charge an annual fee, of no more than 1.5%, whereas non-stakeholder can charge initial, annual and exit fees as they wish.
2. Stakeholder CTFs must gradually reduce risk once your child reaches 13.
In practice this means that most stakeholder CTFs invest in (lower cost) tracker funds, which try to mirror the performance of a stockmarket index such as the FTSE All Share. The investment will also be progressively moved away from the stockmarket towards safer havens such as cash and gilts from your child's 13th birthday.
Non-stakeholder CTFs can provide a wider choice of investment. For example, you could choose funds that invest in overseas stockmarkets or buy individual shares. They also tend to offer funds actively run by fund managers, rather than trackers. However, all this comes at a cost. Expect to pay initial charges of up to 5% (& annual fees similar to stakeholder) when buying actively managed funds and dealing fees of around £10 or more when buying/selling shares. CTFs that allow shares also usually charge an annual 'account' fee, typically 0.5% or more (often with a min of £10+).
Unless you're likely to top up the basic voucher by £1,200 a year or are keen to invest in a certain market, fund or share, then a stakeholder CTF will probably prove the simpler and more cost effective option. Tracker funds also tend to fare well versus actively managed funds in the UK stockmarket, so the lack of actively managed stakeholder funds is not necessarily a bad thing.
When choosing a stakeholder tracker fund look for low charges and the FTSE All Share Index (which is a little more diverse than the FTSE 100). The F&C stakeholder CTF ticks both these boxes and is currently the cheapest stakeholder on the market with total annual charges of 1.05%.
If you fancy some overseas stockmarket exposure too then take a look at the Family Investments stakeholder CTF. This tracks the UK, US, Asia Pacific and European stockmarkets. The annual charge is 1.5%.
For non-stakeholder CTFs The Share Centre seems to currently offer the lowest dealing/account fees. Else F&C offers a wide range of (mostly) low cost investment trusts, although some of these are rather high risk.
Links to the companies mentioned:
The Share Centre
Hope this helps!