Add the zeros and your savings won't come to nothing

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The Independent Online

Children are expensive. Even in the unlikely event that you could persuade them to live without Pokémon, a new Arsenal strip or a mobile phone, bringing up children to the age of 18 can cost between £50,000 and £90,000 apiece - and that's before university.

Children are expensive. Even in the unlikely event that you could persuade them to live without Pokémon, a new Arsenal strip or a mobile phone, bringing up children to the age of 18 can cost between £50,000 and £90,000 apiece - and that's before university.

The only way to cope is to save wisely and start as early as possible. Zero dividend preference shares are ideal. Zeros are a type of share issued by split capital investment trusts. They pay no income, but you get a lump sum on maturity.

Most zeros have a life of seven to 10 years. Zero holders are pledged a certain level of capital growth - most trusts promise around 8 per cent a year. The maturity value of a zero is stated but not guaranteed. In order for the full maturity value to be repaid, the investment trust's assets must grow at a certain rate, known as the hurdle rate.

Parents should consider building up a portfolio of zeros, with one maturing each year the child is at school. This should be done as early as possible. As independent financial adviser (IFA) Best Investment points out, to raise £9,000 in three years, the zero holder would need to invest £7,140 given an 8 per cent return - but for the same return, only £4,000 would need to be invested over a 10-year period.

Zeros are low-risk and tax- efficient: since no dividends are paid, no tax is payable on income. They are not just for parents. Any cautious investor looking for solid capital growth, rather than a regular income, should consider them.

When zeros mature, investors often use their capital gains tax (CGT) allowance - £7,200 this tax year - to offset the gains. Best Investment calculates that for a top-rate taxpayer not using the CGT allowance, a return of 8 per cent from a zero is equivalent to a 13.3 per cent return from an interest-bearing account.

The performance of your zero relies on the underlying trust, so when buying seek a good fund manager with a track record in the sector.

Justin Modray, at IFA Chase de Vere, also advises looking at the hurdle rate. Mr Modray likes Aberdeen Asset Management's Developing Capital fund, which still has five years to run before it winds up, but which has a hurdle rate of minus 6.3 per cent. This figure means that even if the assets of the trust fall in value by 6.3 per cent each year, you would still get your full return.

Mr Modray also recommends Invesco Geared Opportunities, and Gartmore's High Income fund, which has five years and eight months still to run, with a hurdle rate of minus 6 per cent. Although Invesco's trust is in a slightly riskier sector, its hurdle rate is very low at minus 12.4 per cent.

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