A problem some investors have with mutual funds is that they cannot control what their money is invested in. This often leads mutual fund investors to put money into causes that clash with their personal beliefs. By investing in a socially responsible mutual fund, you can make a return and help a cause that interests you.
Socially Responsible Funds
A socially responsible mutual fund is, as the name suggests, one that invests in causes that are considered socially responsible. Regular mutual funds do not place moral boundaries on how clients' funds are invested. For example, a mutual fund might invest in a weapons manufacturer or in a casino. With a socially responsible mutual fund, the investments have to meet certain investment criteria and social standards. Investors in these funds have the incentive to help a cause through their investments.
Types
Several types of funds considered socially responsible are available for investors. One common group of socially responsible funds involves faith-based mutual funds. These mutual funds may invest in ministries associated with churches as well as in missions projects. Another category of socially responsible mutual funds invests in companies and technologies aimed at improving the planet in some way. For example, these mutual funds might invest in companies that are researching alternative sources of energy.
Investment Performance
The performance of socially responsible mutual funds varies widely, and there is no general rule regarding the returns you can expect. In some cases, these mutual funds do well and beat the market consistently. Others may generate more modest returns or even lose money. Analysts are unsure whether the funds' performances are influenced by social screening, which may affect the type of person likely to invest in such funds.
Choosing a Fund
If you are considering investing in a socially responsible mutual fund, you should evaluate the holdings and strategy of the fund. Some mutual funds in this category do not fully live up to the socially responsible label. They may claim to be a socially responsible fund, but still invest in companies that may not fit the fund's investment criteria. You can determine exactly what the fund is holding by looking at the mutual fund prospectus, and you can decide whether it matches your values.
