Bonds perfect as child’s school fund
AN innovative product f r o m Aus t o c k L i f e – ChildBuilder Bonds – has all the advantages of ordinary investment bonds but have some extra bells and whistles as they are offered under a master trust system.
This enables the investor to spread their funds across a range of wholesale managed funds, but best of all also allow switching between the funds at any stage with no capital gains tax.
The bonds are initially held in the name of the i nvest o r , us ual l y t he parent or grandparent, with a provision that the proceeds will vest in the nominated child at a set age that can be between 10 and 25.
David and Kate are determined that their oneyear-old son, Nicholas, wil l g o t o a p r i v a t e secondary school.
They make an initial investment of $ 2500 in a ChildBuilder Bond and then make a commitment to invest $ 200 a month into the bond. The outcome is very important to them, so they take advantage of the 125 per cent add on feature and i ncrease t heir contributions by 25 per cent each year.
If the fund earns a net 7 per cent a year there will be $ 137,000 there when Nicholas turns 12.
As this will more than meet their target they would then stop contributing and start making regular withdrawals.
After allowing for inf l ation t hey calculate that the school fees will average $ 20,000 a year over the next six years.
If all goes to plan there should be $ 55,000 left in the bond when Nicholas finishes school.
Because these bonds are a tax-paid investment, there is nothing to declare on anybody’s tax return each year, nor is there any tax on withdrawal or transfer to Nicholas.