Investing directly, rather than through a specialised education fund or insurance bonds, gives parents flexibility to access a range of fund managers and equities that are available in the market.

If you want to invest directly into listed equities, then the option of regular contributions will generally not be available or will be expensive given the brokerage costs involved each time you buy or sell a listed equity.  You, therefore, need to consider options such as allocating a certain amount each month to put aside to purchase the equities when you have a big enough pool to justify making the purchase.

Key features

• A number of managed funds allow you to make regular or ad-hoc contributions.
• All earnings of managed funds and equities are paid directly to you and are taxable in your hands at your marginal rates.  This is a key differentiator between investing via an education savings plan or insurance bond where the earnings are not assessed in your hands.
• Earnings are paid back to you. This means you need strong discipline to ensure that they are retained for the purpose that you intended them for i.e. funding the costs of your child’s education.
• Offer a range of investment options—from a cash fund offering low volatility through to high growth options where returns will fluctuate significantly in line with investment markets.
• All earnings are taxable at marginal rates
• Capital gains tax applies on disposal
• Establishment and ongoing costs apply and brokerage costs for direct equities limit access to regular contributions.

Many financial planners recommend investment platforms to facilitate investments into managed funds and shares, so be wary of the layers of fees that you may be paying under this option.

Seek financial advice if you want to invest in this option to ensure that this option is suitable for your needs. 

Other options

• Education savings plans

• Insurance bonds

• Mortgage redraw

• Term deposits and target savings accounts