A Christmas gift isn't always something children can unwrap

Coming up with Christmas gifts for the children in your life can be quite a challenge, especially if you’re trying to avoid the stuff destined to end up as landfill and give them something that could stand them in good stead in the future.

But there is a neat solution, in the shape of contributions to a Junior ISA in their name. Parents or guardians have to open the account, but then anyone can make payments in – so if you’re a friend or relative, you could suggest the idea to the parents and promise to contribute when it’s up and running.

While such a gift is unlikely to win you a heap of votes from young recipients as the provider of this year’s coolest Christmas present, you can be sure that in years to come both parents and children could be very glad of the nest egg that should have built up.

A tax efficient nest egg

Junior ISAs are certainly the obvious choice if you’re thinking of long-term investing for a child. The money grows free of tax and cannot be touched by anyone until the child reaches age 18, at which point it converts to an adult ISA and they can either withdraw the cash or leave it invested to compound further.

Indeed, family or friends requesting access to a Junior ISA could be a great way to encourage the parents to think about making regular contributions themselves, in preparation for the slew of expenses - driving lessons, university, deposit for a first home – coming down the line as their child reaches young adulthood.

To put that into context, a 2025 report from the Higher Education Policy Institute suggests that a student on a three-year degree course needs around £61,000 to have a minimum acceptable standard of living at university, or £77,000 if studying in London.

Annual means-tested maintenance loans are available, but in 2024/25 the average loan was worth less than £7,700 - around a third of the income needed. Parents are therefore typically looking at an annual contribution of around £13,000 to their child’s student finances.

(Importantly, those figures take no account of tuition fees of up to £9,535 for the 2025-26 academic year, which are normally covered with a student loan.)

Meanwhile, a report by estate agent Savills estimates that more than half of first-time buyers receive parental assistance, with an average £55,000 in gifts and loans.

It goes without saying that most families simply cannot find such substantial tranches of cash at short notice, especially if there are several children to cater for.

The power of the long view

But time is your friend here. The key as a parent is to make provision for your child from an early stage, setting up regular contributions into a Junior ISA, encouraging gifts from friends and family, recognising the financial benefits of investing rather than saving for this kind of long-term goal, and then choosing a well-managed investment where the money really works hard.

To give a simple idea of the kind of nest egg you might build up, let’s take new parents Nick and Amanda, who set up an account when baby Sophie is born. They can afford to pay in £50 a month and have been offered a further £50 a month in total from the two sets of grandparents, so the account is growing by £100 each month.

They choose an investment producing total returns averaging 6% per year. After 18 years, Sophie’s fund is worth over £38,700 (though this does not take account of inflation, which will mean the money is worth less than that in real terms).

Investment trust strengths

Investment trusts are an excellent choice for long-term, ‘set and forget’ investing like this. That’s partly because they tend to outperform their open-ended fund peers across most sectors over the long term: data from the AIC shows trusts have the edge in 11 out of 15 sectors over 10 years.

That long-term outperformance is a consequence of the unique structure of trusts, though those structural features also mean they tend to be rather more volatile on a short-term perspective.

First, unlike open-ended funds, investment trusts issue a set number of shares on the stock market, which trade in the usual way on the basis of supply and demand.

Typically a trust’s shares stand at a discount to the total value of the assets in which it is invested (its net asset value). But if a particular share gains popularity with investors, that discount will reduce as the share price rises, giving an added kick to the returns from the assets themselves.

Trusts can also borrow to invest, which again can enhance shareholder returns if those investments prosper.

Additionally, trusts’ closed-ended status means that the managers don’t have to worry about dealing with short-term inflows or outflows of investor cash as open-ended funds do, so they are better placed to make long-term investment calls.

Closed-ended choices

So what kind of investment trust might you choose for a Junior ISA? It’s sensible to diversify across more than one market, and one way to do that is to use a global trust.

But for canny investors keen to take advantage of some of the best-value opportunities at the moment, an alternative might be to split contributions between two trusts with very different focuses.

Aberdeen’s stable of high quality trusts includes the UK-oriented Aberdeen Equity Income Trust, where investors can get exposure to a rigorously selected portfolio of shares in some of the UK’s best dividend-paying businesses of all sizes.

The UK has long been a relatively unloved market, yet there are numerous high-quality companies to tap into. The trust’s share price has more than doubled over the past five years, and that capital growth is enhanced by a meaty dividend yield, currently around 6%.

Aberdeen Asian Income Fund, in contrast, provides exposure to the dynamism of the Asian economies, with much more of a focus on high-growth, future-facing sectors such as technology and AI. As well as offering huge growth potential, Asia’s dividend culture has developed rapidly in recent years, and the trust is currently paying a 6.7% yield.

An alternative, more growth-focused complement to UK market exposure might be abrdn New India Investment Trust. The Indian economy has enjoyed spectacular growth in recent years, and this trust seeks out some of the world-class companies driving it. The past year’s market correction has offered opportunities for the managers to pick up shares in great businesses at more sensible prices.

There are plenty more options to choose from in Aberdeen’s highly regarded range of investment trusts: rich pickings indeed for long-term investors with an eye on their children’s futures.

Important information

Risk factors you should consider prior to investing:  

Other important information:

The Aberdeen Asian Income Fund Key Information Document can be obtained here.

The abrdn New India Investment Trust plc Key Information Document can be obtained here.

The Aberdeen Equity Income Trust Key Information Document can be obtained here.

Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG, authorised and regulated by the Financial Conduct Authority in the UK.

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