Parents opening a stakeholder child trust fund will not be able to use investment trusts but will be allowed to invest in unit trusts.
The decision to exclude investment trusts has angered IFAs who believe investors should be able to choose the investments they believe will generate the best returns.
Product providers in the CTF market will have to offer the 1.5 per cent capped stakeholder scheme which invests predominantly in equities.
Firms can choose to offer a non-stakeholder equity-based CTF with no price cap and a cash scheme, similar to a tax-free savings account.
Some IFAs say they favour investment trusts over unit trusts as ITs tend to offer lower charges.
The Association of Investment Trust Companies says the move to exclude investment trusts is related to single-pricing and it is planning to negotiate with the Treasury.
Communications director Annabel Brodie-Smith says: “Waters have been muddied over how single-pricing works. Investment trusts already work with single-pricing as part of the Cat-standard Isa.”
Michael Philips proprietor Michael Both says: “As a sceptical parent, I would say the Government seems to be gaining a lot of political capital from CTFs but parents will gain very little. Isas would offer them greater flexibility.”