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With the holidays approaching, rather than buying the child on your gift list a toy or game, you might consider giving him or her a slice of the companies that make and sell the toys and games.

Buy the youngster some shares in a mutual fund!

Watching the shares appreciate will teach the child the value of saving and investing. And with years additional compounding availableto the very young, this is one gift that will trulykeep giving.

Unfortunately, the industry's increasing focus on high-net-worth investors is making it harder to turn children into stakeholders in the American Dream. Many funds have investment minimums of $1,000 or more, meaning your "tiny tot" investor will likely have some trouble finding a room at the inn.

Compounding this is the problem of wrapping your present. Stock certificates have gone the way of the dodo bird, and a brokerage statement under the tree isn't likely to bring as much joy to a child as a brightly packaged video game or music player.

But there is still some hope for investors wanting to buck the challenges of acquiring a modest position in a mutual fund as a gift -- or as a start to an investment program of their own.

Several fund families still offer a number of products that allow initial purchases of $250 or less, including American Funds, Commonwealth Funds, Pax World Funds, Security Funds, State Farm and Van Kampen.

The table below lists Ratings' pick for a stocking stuffer from each family.

American Funds has a number of highly rated offerings, but


American Funds Cap World Growth & Income, which is rated A, is about as geographically diverse as you can get.

Because it seeks both capital appreciation and income, the fund is neither super aggressive nor super conservative. Moreover, following both U.S. and non-U.S. investments might broaden the recipient's perspective, both geographically and culturally.


Commonwealth Australia New Zealand is much less geographically diverse, but it offers exposure to some of the fastest-growing markets in the world, and it's the group's highest-rated fund at C. Besides, what kid doesn't want to visit Australia or New Zealand someday?

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The Pax World family of socially responsible funds might appeal to those who want to teach a child the principles of capitalism, while also adhering to the principles of good citizenship on the planet.


Pax World - Balanced Fund is rated highest in the group, and its exposure to both stocks and bonds should produce steady returns.

Security Mid-Cap Value's (SEVAX) returns could be more volatile, but a young person with a long investing horizon should be able to tolerate this.


The State Farm S&P 500 Index was an obvious choice -- this is about as plain vanilla as it gets, and as an index fund, its fees are relatively low. Moreover, you will always be able to answer the question, "How's my fund doing?"

As a small-cap fund,


Van Kampen American Value B is another potentially volatile choice, but again, someone with a long-term investment horizon should be able to tolerate this.

A word of warning, however: Van Kampen is raising the investment minimums on all of its funds to $1,000 in June 2007. Those who want to get in before the deadline should be aware that the funds may redeem any shareholder account that has been open for a year or more and has a balance of less than $1,000. That might not be appropriate for the person wishing to give a gift that keeps on giving.

This list is far from comprehensive, and if there's any doubt about getting into a fund with a low initial investment, don't hesitate to call the firm and explain your needs. It is not uncommon for exclusions and waivers to be hidden in dark corners of a fund's prospectus, one of which might allow an initial investment in line with a gift-giver's budget.

Be sure to make the fund company or your financial professional aware if the shares are to be purchased as a gift to a minor. A Uniform Gift to Minors Act filing must be completed in such cases.

In addition, be sure to check all the costs associated with the fund. Some firms charge additional fees, such as account maintenance charges, on accounts with modest balances. A $10 annual account fee on a $250 balance represents 4% of assets. Add another percentage point or more for the fund's expense ratio and most or the gift recipient's investment returns could be eaten in fees up like cookies left for Santa.

Widows is a financial analyst for Ratings. Prior to joining, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.