Mutual Funds for Kids Stress the Saving Lesson

Parents should look for funds with low fees and low minimum investments and, if they deem it important, funds that avoid investments in makers of alcohol and tobacco products.

The Vanguard Star Fund, Kathman said, carries low fees, diverse holdings and rather than a typical $3,000 initial minimum investment, a $1,000 requirement.

The T. Rowe Price Spectrum Growth Fund, for those using an automatic investment plan, carries a minimum initial investment of only $50 and that amount also applies to subsequent investments in the fund.

Tom Roseen, an analyst at fund tracker Lipper, says the advantage of funds that look to attract young investors is their ability to help budding investors become savvier at an earlier age.

"All of the sudden they start relating to economics, to returns, to why to be invested," he said of children who might buy a pair of shoes and see the value in investing in the shoe's maker.

And of course winning over investors while they're young can be wise for fund companies.

"They know if they can win the hearts and minds, they feel they're going to have lifelong investors," Roseen said of fund managers.

He also said that early investors who are not planning to draw on their investments soon can realize the benefit of hanging on during a stock market pullback. Older investors too often sell at the lows and buy at the market's highs when they try to anticipate the moves of markets.

But careful consideration of one's expected needs can help breed good investment practices, analysts say.

"Holding kids' interest is one part of it, but also teaching them good investing habits is another thing which I think is potentially more important in the long run," Kathman said.