Ethical investments Choosing an ethical investment fund
An important thing to consider when choosing an ethical fund to invest in is whether or not the fund matches your ethical principles and commitment to social responsibility.
Ethical investment sectors
Like individuals, funds have different definitions of what they deem to be ethical and will draw the line in different places. Some funds seek to avoid the traditional 'sin' industries, such as gambling, alcohol and tobacco production, and pornography but some will pick and choose from those.
Others may lean towards a distinctly separate area, such as clean technology, renewable energy or companies able to demonstrate strong commitment to human rights and equal opportunities.
It's worth looking at a factsheet provided by the fund manager, which should list the objectives of the fund and its top 10 holdings, which will give you an idea of the types of companies it invests in.
However, this may not provide you with the clearest idea of where your money will be invested. Read our guide to How ethical are ethical funds for more.
How to invest in an ethical fund
If you're interested in investing in an ethical fund, be sure to get expert advice. An independent financial adviser (IFA) should ask about your ethical stance and whether there are any social, ethical, environmental or religious considerations you'd like to take into account in your investment.
From that, you should be able to list all of the positive and negative screens you'd like to employ, which the adviser will then use to identify funds representing a good ethical match.
It may be impossible to find a fund that perfectly matches your ethical criteria and attitude to risk. By sticking strictly to your ethical principles you may have to accept the possibility of a lower return or higher investment risk. Alternatively it could mean relaxing your ethical principles in order to get the investment income or risk exposure you want.
Risk and ethical investments
Before you decide to invest in an ethical fund, be aware that the same considerations apply as with any investment. These include your attitude to risk, timescale, whether you're likely to need to access your money, fund management fees, your tax status and the financial strength of the fund provider.
As with all share-based investments, your investment can go down in value as well as up.
Also, because many ethical funds exclude or screen out certain industries, their diversification (variety of different funds invested in) may be lower than other more mainstream funds, and this increases the risk of major fluctuations.