Is the Children's Mutual CTF any good?

This is a non-stakeholder child trust fund (CTF) that offers a choice of 11 investment funds from 5 different fund managers: Gartmore, Insight, Invesco Perpetual, SWIP and UBS.

You can invest the basic £250 CTF voucher in one fund and there’s a £250 minimum per fund for subsequent top-ups, falling to £25 per fund for monthly saving (subject to a minimum £50 overall monthly contribution).

While fund choice is probably too narrow to excite keen investors, the funds offered are generally reasonable, with highlights being Invesco Perpetual Income, Gartmore European Selected Opportunities and Gartmore US Growth. So, on the whole, fairly attractive compared to stakeholder CTFs, where your money is invested in just one fund (usually a tracker). But there’s one major difference, initial fund charges.

While the funds offered by Children’s Mutual have typical annual charges of around 1.5% (the same as stakeholder), they also have initial charges of between 3% - 5%. And if you switch funds you’ll be clobbered by the full initial charge all over again, which seems unfair. The initial charges are there because Children’s Mutual pays sales commission of 3% initially (not on the £250 voucher) and 0.5% annually to financial advisers, but given most advisers won’t get out of bed for such small sums (3% of the maximum allowed £1,200 annual top-up is just £36) it all seems a bit self-defeatist.

There’s the option to automatically shift into a less risky investment fund between ages 13 and 18, at a rate of 20% a year, which will be sensible for most.

Because this is a simple product that pays commission it makes sense to buy via a discount broker and cut costs by reclaiming some of the commission. However discount brokers don’t seem to be interested in child trust funds, probably as the amounts are so small it’s not worth their while. The only broker I’ve found that obliges is Clubfinance, which waives 2% initial commission on any top-ups and rebates 75% of any annual trail commission received, although the latter is only refunded after the child’s 18th birthday - a long wait.

Overall this is a worthy alternative to stakeholder CTFs if you reduce initial fund charges by using a discount broker. Otherwise the initial charges are mostly rather steep and the fund choice is probably too narrow for keen investors.

Read the full review at http://www.candidmoney.com/candidreviews/review23.aspx