If you're not thrilled with the thought of giving purple dinosaurs and mind-numbing video games as gifts for the holidays, then consider giving your friends shares of a mutual fund.
True, when it comes to kids (and sometimes young adults), fund shares are about as popular as broccoli.But it doesn't have to be that way, especially when you explain to a kid that a mere $250 left to compound for 20 years in a growth fund at 12 percent annually will be worth almost $2,500. That translates into a lot of video games.
In most cases, gifts to young children reside in custodial accounts. You or someone you designate is the custodian until the child reaches the age of majority - 18 or 21 in most states.
The mutual fund will have the appropriate application forms.
To set up such an arrangement with the fund company, have the shares registered as follows: (name of donor), as custodian for (name of minor), under (name of state) Uniform Transfers to Minors Act (or, if your state has not adopted UTMA, Uniform Gifts to Minors Act).
If you object to the child receiving everything all at once at a young age - or if you expect the amounts involved to become substantial - consult with an estate-planning lawyer about creating a trust to hold the shares.
You or the child's parents can foot the tax bill, but the first $600 in unearned income each year goes untaxed, and the next $600 is taxed at the child's low rate, usually 15 percent.
Unearned income of more than $1,200 is taxed at the parents' rate until the child reaches age 14.
All these funds have three-year total returns as of Nov. 1 that beat the Standard & Poor's 500-stock index and their category averages. All are free of sales charges.
- MIM STOCK APPRECIATION. Three-year annualized return, 34.4 percent; for a prospectus, call (800) 233-1240.
- MUHLENKAMP FUND. Three-year annualized return, 33.6 percent; prospectus: (800) 860-3863.
- PBHG GROWTH. Three-year annualized return, 48.2 percent; prospectus: (800) 809-8008.
- TWENTIETH CENTURY GIFTRUST. Three-year annualized return, 45.5 percent; prospectus: (800) 345-2021.