Investors in Junior Isas are going into higher-risk investments to seek long-term returns, Darius McDermott, managing director of Chelsea Financial Services, has said.
Revealing his clients’ top-selling Jisa funds since their introduction in 2011, he said: “Investors putting money in Junior Isas are prepared to go into higher-risk areas such as smaller companies, companies in recovery and emerging market stocks.”
According to the findings, all of the top 10 most popular funds were equity funds.
Mr McDermott said: “Moving into higher-risk investments is a calculated risk with Jisas, and looking at historical data, equities have greater long-term potential for returns than cash.”
Apart from the tax incentive, he said, Jisas were appealing because of the length of investment, as they can only be accessed at the age of 18, hence parents with very young children could take more investment risk.
Furthermore, record-low interest rates also made the case for equities in Jisas even more compelling. He said: “Presently, cash accounts and 10-year gilts return either a derisory or negative real return on investments when factoring in inflation.”
The tax-efficient savings and investment vehicle is aimed at parents, guardians and grandparents who want to save for a child’s future. There are some differences, one being the annual contribution, which is £4,000 for the 2014/15 tax year. However, the Isa advantages of no capital gains tax and no further liability to income tax are the same.
|Top 10 funds invested in JISAs by Chelsea Financial Services’ investors|
Marlborough Special Situations
Marlborough UK Micro Cap
M&G Global Emerging Markets
Rathbone Global Opps
Liontrust Special Situations
M&G Global Dividend
Newton Asian Income
Newton Global Higher Income
Woodford Equity Income
Bob Wilson, financial adviser at Norfolk-based GreenSky Wealth, said: “With the minimum investment period and timescale for Jisa, it makes sense to be more risk prone and put money in equities in order to get a good return. Providing the child wants to access it at 18, you can then de-risk it closer to the time.
“The fund choices are good, and are those usually used by independent advisers. Our biggest holding is the Fundsmith Equity Fund.”