Child Trust Funds Take a Long Term View
Below is a MRR and PLR article in category Finance -> subcategory Other.
Understanding Child Trust Funds: A Long-Term Outlook
Overview
Andrew Hagger, Head of News and Press at Moneyfacts.co.uk, evaluates the progress of Child Trust Funds (CTFs) after their first year.
Introduction
April 6, 2006, marked the first anniversary of the Child Trust Fund (CTF). Many parents are pleased with their investment choices, witnessing impressive returns over the past year.
Investment Performance
A year since CTFs launched, those opting for higher-risk investments, such as the F & C Global Smaller Companies trust, have seen their initial £250 grow to over £370. This growth starkly contrasts with cash-based investments, where the return is more modest, transforming £250 into approximately £262.
While cash returns appear small compared to some equity-based CTFs, it's important to note that around half a million parents haven't used their vouchers to open an account, missing out on any return.
Government Contribution
For parents yet to open an account, remember that the government contributes an additional £250 (or up to £500 in some cases) on your child's seventh birthday, as confirmed by Gordon Brown in the recent budget.
Choosing the Right Fund
According to Abbey and Nationwide BS, over 60% of CTFs are cash-based. However, seeing the returns from non-stakeholder equity funds might tempt parents to switch.
Before making any changes, consider that funds promising higher returns also pose greater risks in turbulent times. It's crucial to view CTFs as long-term savings and investment accounts.
Finding a Middle Ground
Stakeholder equity-based funds offer a middle ground, potentially providing better returns than cash CTFs but with less risk than non-stakeholder investment trusts.
Seeking Professional Advice
If you're uncertain about the best option for your child's savings, consulting with an independent financial adviser now could prove beneficial when your child accesses their funds at 18.
You can find the original non-AI version of this article here: Child Trust Funds Take a Long Term View.
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