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Child Trust Funds can 'ride out lumps and bumps in share values'

29 August 2009 / by Andy Davies

Parents are being urged to open a Child Trust Fund by F&C Investments. which believes now is as good a time as any to begin investing in their child's future.

This follows the news that the government will be handing out £250 in addition to the same sum given when an account is opened, to children who are turning seven this year.

F&C Investments believe a CTF is a good way to invest in a child's future despite the stock market's volatile performance in the last few years, because the length of the investment should be "long enough to ride out any lumps and bumps in share values".

Jason Holland, director at F&C Investments said: "Whatever recent stock market performance has been like, cash is perhaps not the best place to invest over the long term, as although your capital is secure, its real value will be slowly be eaten away by inflation.

"In contrast, we believe the best time to buy equities for the long term is often when markets have been through a tough patch."

The Child Trust Fund is available to children born after September 2002, and enables parents, family members or friends to make deposits of up to £1,200 a year until the child turns 18.

According to the independent asset management company, a CTF with a compound growth rate of six per cent with the maximum contribution of £1,200 a year plus the government's two £250 vouchers could produce a fund of £40,000 at maturity.

Mr Holland added: "While it's nice for the kids to have this autumn windfall in the shape of the vouchers that are about to arrive, the real measure of long-term success for Child Trust Funds will be the extent to which they are topped up, rather than the size of taxpayer handouts, as that will be the ultimate proof as to whether the nation's savings habits have changed."

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