Advantages Flexibility, low fees, transparancy
Disadvantages There is risk in all stock market investments
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Changes in government policy on college fees, difficulties faced by first time house buyers and publicity about shortfalls in pension schemes and lack of pension planning in general must cause many parents to wonder just how their offspring are going to cope financially when they enter into adulthood.The government is actively trying to encourage parents to invest for their children's future and is to provide a start up contribution towards a savings fund for all children born after Sept 2002. Low interest rates and recent large falls in the stock market add to concerns when trying to decide where to invest for your children. Many of the so called Friendly Societies which heavily market to parents with young children charge such hefty fees for managing an investment or withdrawing money that people are often put off.
Several years ago, on hearing a discussion on a radio programme, I looked into a specialist children's savings plan provided by the Witan Investment Trust. The advisor speaking praised Witan's Jump Children's Savings Plan for its low and one off investing fees, its total transparency - you can obtain information on company investments and check daily in the stock market listings on the share price for Witan, flexibility and the no penalty policy should you need to cash in at any time. The scheme is aimed at parent's, grandparents, godparents etc who may want to make financial provision in advance for a child's financial needs when they, for example, start college, buy a home or start a private pension and need a substantial lump sum.The Witan Investment Fund was set up in 1909, is one of the UK's largest investment funds and is managed by Henderson Global Investors. It has £1.6 billion in investments and over 50,000 investors. The fund is aimed at long term investors and minimises risk by spreading its investing among 250 large blue chip global companies and a number of smaller ones with good long term potential. As an example: £50 per month paid over last 18 yrs will now give £21,460 a profit of £10,660 - rather more than any building society or bank would provide. Be warned though, a sum of £50 per month invested over 5 yrs would only provide a £500 return on the original investment and a lump sum of £450 put in 5 yrs ago would actually give a £42 loss! As I previously advised - look to the long term, 10 yrs at least.
The advantage of investing monthly rather than in a lump sum is that your investment rides the ups and downs of the stock market providing the least possible risk of losing money rather than gaining. For example, the recent heavy down turn in the stock market would heavily effect anyone who put in a lump sum investment two years ago who would not really be gaining any benefit from this years steady rises.The Jump Children's Savings Plan charges a 1% or £1.25 minimum dealing fee each time it makes an investment. A government stamp duty fee of 0.5% is added to each transaction. Investments can be made by direct debit for a minimum amount of £25 each time or by lump sum of a minimum of £100. Payments can be made by cheque or direct debit. You can stop, start or alter the amounts going into the scheme at anytime and can take money out without penalty. (With Friendly Society Plans, if you withdraw money early on, so much has been taken at the beginning in fees you have very little left to withdraw.)
I opened a Jump Plan for my son about 5 years ago and have found the best way to ride the stock market ups and downs and minimise investment fees is to pay in lump sums three or four times a year. To date the policy has done well compared to others in the same niche and I am about to start another one for my baby daughter.For big investors - not me - Capital Gains Tax, Income Tax and Inheritance Tax could come into play. The investment may be for a child but still falls into the tax burden of the donor i.e. parent, grandparent, godparent etc. Dividends are quite small, historically 2 - 3%, and paid out twice a year - so unlikely to be a huge problem as there is an allowance for £3000 income per yr tax free under the gift tax rule. Capital Gains Tax can be offset by the donor's personal allowance - which I believe is currently £7,000/yr. The Inheritance Tax threshold is set at £263,000 and can be avoided by setting up a 'Bare Trust', which places the investment outside of the donor's estate.
The Jump Children's Savings Plan is a sponsor of the charity 'Tommys' which researches into the causes of premature death, miscarriage and stillbirth. A large sum has already been raised by donations of initial investing fees. If you require additional general advice on investing for children, the book Money: Your children, Their Future' by Sally Hamilton donates all royalties to the Tommy campaign. It can be found in many bookshops and on www.amazon.co.uk.Further information on Witan, Jump Plan and downloadable application forms can be found on www.witan.co.uk.
Telephone advice and information packs ring: 0800 082 81 80
Bare Trust info pack can be obtained from the same telephone number.
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