Socially Responsible Mutual Funds SRI: Introduction, Investments, Example, Risks

In this article, we will talk about the so called Socially Responsible Mutual Funds. Topics covered are Examples of Socially Responsible Mutual Funds, How to invest in Socially Responsible Mutual Funds, Which funds in the markets are available for Socially Responsible Investments the Risk with Socially Responsible Mutual Funds, etc.

Let's start with the basics:
What is a Socially Responsible Mutual Funds
We all know how mutual funds work. Now mutual funds which invest specifically in companies which act in a Socially Responsible manner, are considered to be Socially Responsible Mutual Funds. For example, we have the concpet of Ethical Funds - which basically means that a mutual fund house or a mutual fund manager defines a few ethical principles and invests in companies which follow those principles.
The Socially Responsible Mutual Funds are similar in nature in the way that it invests the money of investors in companies which are following practices which are considered to be socially responsible. These may include, but not limited to, the following:

1. Corporate governance and ethics: Following rules and policies for coporate governance ethically.
2. Workplace practices: Ensuring a good workplace for employees on factors like equal oppotunity employer, employee benefits, etc.
3. Environmental concerns: Green Initiatives, Not harmful to the environment
4. Product safety and impact: Concern for end consumer's safety and the impact of the end product on consumers as well as environment
5. Human rights: Employee rights, etc.
6. Community relations: Connecting with the locals, ensuring employee programs to help locals with their problems
7. Indigenous peoples' rights

Listed above are just few of the practices that a particular Socially Responsible Mutual Funds Manager can look for and establish the terms for investing the investors money in his funds. Again, the list is not comprehensive and it can increase depending upon the person's choice.
Then, there are other arenas as well which if NOT touched, can be considered as Socially Responsible Investing. Say if you are an animal loer and cannot tolerate cruelity towards animals, then you may not like to invest in companies which make fur coats & hats out of animal skins. If you are against smoking and tobacco consumption, then you may not like to invest in companies which manufacture cigarrates. If you are vegetarian, then you may not like to invest in companies which are in non-veg food processing business. Hence, the Socially Responsible Investing can vary from one individual to the other, depending upon his personal choice.

Related Articles: Green Mutual Funds  Low Cost Mutual Funds, Alternative Energy Mutual Funds

How should I selected a Socially Responsible Mutual Funds for investment?
It's a question which can be answered by looking at your own preferences. Below in this article we list out a sample of some Socially Responsible Mutual Funds. Depending upon your preferences, you are expected to get the details from the prospectus and see which Socially Responsible Mutual Funds match your expected preferences.

How do I check the performance of Socially Responsible Mutual Funds?
Every mutual fund declares a benchmark which it follows. Hence, the best would be to see how the fund has performed compared to its benchmark index. However, apart from the underlying benchmark index, there are some dedicated index exclusively for tracking the Socially Responsible Investments. KLD's Domini 400 Social Index (DS400) index is one such index which is the first benchmark index constructed using environmental, social and governance (ESG) factors. It is a widely recognized benchmark for measuring the impact of social and environmental screening on investment portfolios. See how your selected Socially Responsible Mutual Funds has performed as compared to this index by comparing the returns of this index v/s you Socially Responsible Mutual Funds returns for the given time period.

Any examples of Socially Responsible Mutual Funds?
Yes, as available on the various sites on the internet and print media, here are some of the examples which are known to be Socially Responsible Mutual Funds.
Ariel Appreciation
Blue Small Cap Fund
Calvert Capital Accumulation
Calvert World Values International Equity
Green Century Equity
Pax World Balanced Fund
Winslow Green Growth Fund
Calvert Social Responsibilty Index
However, this is not complete list of Socially Responsible Mutual Funds and not a solicitation to buy or invest in them. Investors are expected to take their own decision as per their choice as there may be many more Socially Responsible Mutual Funds available in the market.

What are the risks involved in investing in Socially Responsible Mutual Funds?
The Socially Responsible Mutual Funds have to invest in companies which the fund manager believes to be Socially responsible. However, it is possible that the principles may not be actually followed by the company, or it may be followed by the company when the investments were made, but later the scenario changes. Hence, there is a risk of deviating from the established principles and how well your fund manager can track it.
Other than that, there is a risk of limitations. Basically, people invest to earn money. The more principles and rules you have, the shorter domain is left for you to experiment. Hence, there is no guarantee that your Socially Responsible Mutual Funds Investments will actually turn out to be outperformers as compared to any other general or sector specific Mutual Fund.