Junior ISAs are the latest way to save for your child’s future; enabling them to get a head start in life.

They have been introduced for children born before and after the Child Trust Fund (CTF) was available, and allow you to save and invest £4,080 (2016/2017 tax year) tax efficiently towards your child’s future. You can invest in Cash or Equities, or a combination of both. Parents and legal guardians are able to make investments into a Junior ISA, but anyone can contribute especially grandparents. Once the child turns 18 they will be able to access the money, or let it roll-over into an adult ISA.

Who can get a Junior ISA?

Your child can have a Junior ISA if they:

  • Are under 18.
  • Live in the UK.
  • You can’t have a Junior ISA as well as a Child Trust Fund. If you want to open a Junior ISA ask the provider to transfer the trust fund into it.

How Junior ISAs work?

There are 2 types of Junior ISA:

  • A Cash Junior ISA, e.g. you won’t pay tax on interest on the cash you save. (TQ Invest don’t currently offer Cash ISAs).
  • A Stocks and Shares Junior ISA, e.g. your cash is invested and you won’t pay tax on any capital growth or dividends you receive.
  • Your child can have one or both types of Junior ISA.

Parents or guardians with parental responsibility can open a Junior ISA and manage the account, but the money belongs to the child.

The child can take control of the account when they’re 16, but can’t withdraw the money until they turn 18.

What is a Junior ISA?

A Junior ISA is a tax ‘wrapper’ that allows you to save and invest for your child’s future.

TQ Invest provides access to Equity ISAs that use collective investment funds, such as Unit Trusts or Open Ended Investment Companies (OEICs), rather than shares in individual companies.

Funds pool investor’s money and appoint an expert (fund manager) to run it. The manager, along with a team of researchers and analysts, look for companies and assets to invest the pool of money in. The companies and assets invested in depend upon the funds aims and objectives. Our guide to funds will give you more information about how they work and the different types available.

Before choosing to invest in a fund, or funds, think about the following; will it help you achieve your investment goal within the Junior ISA? Are you happy with the level of risk and the investments the manager makes?

The overall value of your Junior ISA is dependent on the value of the funds you hold within it.

Junior ISA Benefits

The main benefit is tax efficiency. Junior ISAs have the same tax benefits as the adult ISA. There is no (further) income tax to pay (dividends are still taxed within investment funds), and no capital gains tax will be payable when the ISAs are eventually sold.

We firmly believe anything that promotes saving for our children’s future is also an opportunity to teach them how to save, manage money and reach their goals.

The benefits of using funds

  • An alternative to cash – Continuing low interest rates on cash savings is a source of frustration of the majority of UK savers. Investing in funds is proven to provide greater returns than cash over the long-term, and although higher risk than cash, they represent less risk than investing directly into company shares yourself.
  • Diversification – Funds invest in a wide range of assets, such as shares, bonds, property and even gold. They also invest in different markets from the UK to as far afield as China. This diversification reduces the risk of reliance on one asset or market.
  • Expertise – Funds are run by investment experts (fund managers), who are supported by a team of analysts. They run the fund with the aim of achieving long-term goals. To do this, the fund manager, and their team, analyse the economic environment, individual companies who they either have made, or intend to make investments in to, and the relative performance of different asset classes.
  • Simplicity – The days of seeing a financial adviser, or making the trip to your bank or building society in order to invest are long-gone for many people, as are the costs involved. Funds remove a large proportion of the complexity of investing, largely because there is a fund manager in charge of the day to day running of the money you have invested. All you have to do is choose the fund that you feel is right for you. Fund investing is popular for beginners and seasoned investors alike, because of this simplicity.
  • Convenience – Fund prices don’t move as often as share and asset prices, so there is no need for you to constantly monitor market movements every hour of the day. However, monitoring the performance of the funds in your ISA is all part of the experience, and so you can now get access to fund research and the value of your investments online, whenever you like.
  • Liquidity – Although investing in cash arguably gives you the quickest and easiest solution if you need access to your money, most funds can be sold at relatively short notice (once the child has reached the age of 18). However, investing should really be for those who can afford to keep their money invested for the long-term as this provides the best scenario for growth.

The benefits of investing through TQ Invest

  • Reduced costs – Because you make your own investment decisions, without the help of a financial adviser, you don’t pay initial charges.
  • Help & Support – You will find a range of useful research tools and information within this website. However, if you feel the need to speak to a real person, we have a UK-based helpdesk on hand to answer any questions you have.
  • Ease of investing – If you would like someone to assist you with the administrative process of making the investment, you can call a member of the team on 0800 294 7221..

What is a fund?

  • A fund is a form of collective investment that allows you to invest in a wide range of assets, including company shares. They are a useful way to access investments you couldn’t manage on your own.
  • The term collective investment refers to the fact that your money is pooled together with that of other investors and invested on your behalf by the fund manager. This approach gives you access to buying power you wouldn’t be able to achieve on your own.
  • The fund manager, along with a team of researchers and analysts, runs the fund according to its aims and objectives on a daily basis, monitoring a wide range of factors, including the economy, and the performance of assets and companies.

Types of fund

  • Unit Trusts – When you invest in a Unit Trust, your money buys ‘units’. The units vary in value according to how well (or not) the Unit Trust’s investments are doing plus whether you take an income or not. So the worth of your investment is mainly determined by the number and the value of the units you own. All Unit Trust funds are ‘open-ended’ which means they can issue new units in response to demand from investors. Unit Trusts trade at their net asset value – that is the value of the investments held by the Unit Trust divided by the number of units issued. Unit Trusts traditionally quote two prices: the buying/offer price and the selling/bid price. The buying/offer price is the price the units are sold to the investor; the selling/bid price (usually 5% lower than the buying price) is the price the investor will get when the units are sold. The difference between the two is known as the bid/offer spread. The price of the Unit Trust is calculated daily, usually at midday. As well as an initial charge of around 5%, unit trusts also levy an annual management charge, which is typically 1.5% per year and is deducted from the fund itself.
  • OEICs – OEICs are a relatively new type of investment fund and many unit trusts are converting to OEICs. An OEIC is a company whose business it is to manage an investment fund. The investor takes a stake in the fund by buying the shares of the OEIC (units) which in common with a unit trust is open-ended. Unlike a unit trust, a single price is quoted for buying and selling the shares. An initial charge – typically 5% of the initial investment’s value – will be deducted from the investment fund plus an exit charge may be applied when you finally withdraw your money. Annual management charges are taken from the amount you have invested in the OEIC.

With a fund your money is invested in a range of assets and individual, reducing the risk associated with holding just one of them yourself.

Fund criteria

Every fund has an objective it aims to achieve for investors. The underlying investments the fund manager makes will depend upon that objective. Broadly, funds make their investments with the following criteria:

  • Geography – e.g. UK, America and developing economies such as China
  • Asset type – e.g. company shares, corporate and government bonds and commodities
  • Company size – e.g. investing in small to medium sized business or large multi-nationals
  • Focus – e.g. invest in any type of asset or industry or specialise in a particular one, such as bonds

The criteria the fund follows will determine the risk factor. For instance, if a fund invests primarily in government bonds, then the risk factor is relatively low. Whereas if a fund invests in gold mining companies based in Africa, the risk factor is relatively high.

The majority of funds you can buy take an active approach to management, where the fund manager is constantly looking at the performance of the fund and investment opportunities. However, there are funds that are classed as Passive. These funds are not actively managed, but instead look to track a particular index, such as the FTSE 100.

Fund charges

The majority of funds have different charges associated with them for the service they are offering to you:

  • Initial charge – is the cost of the making the investment in the first instance. The initial charge includes commission the fund provider would pay to a financial adviser, plus an additional amount to cover their administration costs. At TQ Invest, we don’t give advice so there’s no initial charge for you to pay.
  • Annual Management Charge (AMC) – is the cost of running the fund on an annual basis and is usually in the region of 0.75% to 1.5%. It includes the remuneration of the manager and his team, plus a proportion that is given to the company that arranged your investments to pay for the service they provide to you.
  • Other charges – some funds make additional charges to those mentioned above, such as a performance fee. The type and size of the charge differs greatly between funds, so they can be hard to compare. A great way to compare a fund’s overall charges is to look at its Ongoing Charges Figure (OCF), which calculates every charge as a percentage. The OCF can be found on the fund’s factsheet.
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