Investment trusts for your children

Investment trusts are an ideal way of investing for children, for a number of reasons.

• An investment trust may hold shares in up to three hundred or more different companies at any one time, which means you can enjoy all the advantages of stock market investment whilst spreading the risk. This generally makes them less risky than investing directly in the shares of just one or two companies quoted on the London Stock Exchange.
• Investment trusts, on average, deliver excellent returns over the longer term.
• Most investment trusts have low charges, which means more of your investment is actually working for you.
• They are extremely affordable; you can invest from as little as £250 lump sum or even invest monthly (some start from as little as £25 a month).

It is worth remembering that, over the short term, the stock market can be a volatile place. However, these ups and downs tend to get smoothed out over the longer term. This is why investment trusts are so appropriate as an investment on behalf of young children. After all, if you invest when a child is born, you could have 18 years to build up a sizeable investment on their behalf.

Invest on their behalf
Children under the age of 18 are not allowed to hold company shares in their own name. One way around this is for you to invest on their behalf in a way that they become the beneficial owners of the shares when they reach 18. Even though the shares will be registered in your own name you can include their initial alongside. This is a very basic way of holding the shares in trust (called a 'bare trust'). You can set up a more formal type of trust, which could specify, for example, that the child only receives the income from the investment trust until 25, but you'll have to consult your solicitor for this. As the legal position of trusts can be complicated, you should take advice before committing yourself.

Investment trusts are particularly useful for grandparents or godparents who are looking for an unusual gift. They can be used to help pay for future expenses like school fees, university fees, a deposit on a first home or even a wedding. And the sooner you start, the longer and better chance your money has to grow.