Charles Jaffe: Sharing mutual funds as gifts isn't as easy as it seems
BY CHARLES JAFFE Market Watch
Wednesday, December 05, 2012
12/05/12 at 6:36 AM
They don't sell mutual fund gift cards at your local supermarket or drug store.
If you want to pass along your passion for investing as something that "keeps on giving," however, there are ways to make a gift of stock market shares. Just don't expect it to be easy to make an investment and put a bow on it.
Years ago, several mutual fund companies had gift-of-shares programs, where buyers effectively were giving a card or certificate from the fund company, along with a pledge to make an investment in the recipient's name. Recipients would pick the fund of their choice from within the fund family.
But those programs seem to have died off, as have funds that were created specifically with an eye toward being a gift.
The truth is that investors who want to give financial gifts should think, well, outside the box. Typically, that means coming up with a gift of securities that meets their investment criteria - things they can then explain to the recipient so that the long-term gift is the financial insight, more than the money involved.
Sadly, it's not as simple as "buy my favorite fund for the grandkids," because investment minimums could make the purchase price prohibitive. Even gifting some of your existing shares from an existing fund account could face account-minimum issues.
Many firms drop initial investment requirements to $500 or $1,000 for custodial accounts for minor children - call to inquire - but that's no help if your intended recipient is 18 or older. The Mutual Fund Education Alliance (mfea.com) maintains a comprehensive "fund quick-list" of issues that let investors buy in for $50 or less, although some of those funds give the low entry price only to investors who agree to make regular monthly deposits.
If the minimum investment - or the lack of a gift-of-shares program - forces you outside your normal fund favorites, some options may be tough to stomach. Funds with little or no minimum often have above-average expenses, necessary to cover the burden of so many small-dollar accounts.
One more pitfall: Unless you are acting as custodian for a minor child - or are in cahoots with the person who will be - you can't actually buy fund shares for someone else. The gift recipient has to sign the paperwork, which is why those gift-of-shares programs are little more than a card and a prospectus.
You could deposit money into a college savings program, but because the money will then have to be used on qualified educational expenses, it may feel less like a gift.
If you decide to go instead with giving stocks or ETFs, there are other challenges, most notably that many brokerage firms have big fees on small transactions and/or outrageous charges for requesting a physical certificate, which may not be delivered in time for the holidays even if you make the trade now. That feels a bit like paying more for gift-wrapping and shipping than for the present.
Direct-share ownership makes it possible to buy shares and have them registered for the recipient, but a book-entry security doesn't exactly look great under the tree or next to the menorah.
Ultimately, the best way to gift an investment is to pick what you want and can afford, prepare the paperwork, wrap up the prospectus - or the company's product in the case of a stock - and have the whole thing ready to go in the mail moments after the present is opened.
But in the creative display you build around that paperwork, include your investment philosophy and wisdom, and list the factors that led you to make this specific choice. Review this with the recipient and you could spur good investing habits that make sure your gift of investing lasts well beyond the lifespan of this year's hot toy, doll or video game.
Original Print Headline: Sharing mutual funds as gifts is not easy
Chuck Jaffe, senior columnist for MarketWatch, can be reached at firstname.lastname@example.org or at Box 70, Cohasset, MA 02025-0070.