What to do with your child trust fund

Following the bungled auction of our gold reserves, nobody in their right mind would entrust investments to the Treasury. But with a quarter of child trust fund (CTF) vouchers still not invested, many parents are doing just that. If you don't invest the vouchers within 12 months, the Government will do so on your behalf. There are now about 555,000 CTF accounts invested by the Government, according to The Daily Telegraph.

All children born after 1 September 2002 are entitled to a £250 voucher from the Government to pay into a child trust fund; low-income families receive £500. The Government voucher can then be topped up by £1,200 a year tax-free by family and friends, so when the child turns 18, they'll have a lump sum that's avoided capital gains tax. Assuming that you trust your offspring not to blow the lot on nights out or a new car the money will be in their name, so this is definitely something to consider this could be useful for funding university, or rolling into an Isa to keep growing.

Parents can choose between a cash account, a stakeholder account (which follow Government rules on fees chargeable and risk levels) or a non-stakeholder shares account. Parents can also switch between CTFs whenever they like. Despite the popularity of cash and stakeholder accounts, which amount to 20% and 74% respectively of sales so far, both have underperformed non-stakeholder accounts (just 6% of sales) over the past two years. The best performing stakeholder, Scottish Friendly Managed Growth, returned 40%, says The Daily Telegraph, while the top cash accounts, from Yorkshire Building Society and the Hanley Economic Building Society, offer just 6.8%, says Moneyfacts.co.uk.

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These pale into comparison beside the performance of the top non-stakeholder accounts, which offer a greater range of funds most stakeholders are just FTSE trackers. One of the best performing investment trusts available as a CTF, the F&C Pacific Assets Fund, has returned 64% between 2005 and 2007, yet currently trades on a discount to its net asset value of nearly 9%. The region may be volatile, but with 18 years to play with, the fund seems a good long-term play on the Asian growth story to us.