Socially Responsible Mutual Funds

The Socially Responsible mutual funds invest in the stock of companies the funds' managers deem to be socially responsible in terms of various criteria. This is referred to as Socially Responsible Investing or simply SRI.

The criteria used to determine if a company can be considered to be socially responsible include: treatment of employees, attitude toward the community and society in general, level of environmental responsibility, production of environmentally friendly goods, use of alternative energy and fuels, production of alternative energy and fuels, use of more environmentally benign raw materials, respecting the rights of shareholders and being good corporate citizens. Green investing is a subsector of SRI.

Socially Responsible funds have been around for many years, but until recently, they have been relatively small, few in number, obscure and had spotty performance. However, these funds have become quite popular, increased in number and become very competitive with mainstream mutual funds in terms of returns.

A 2005 study by the Social Investment Forum determined that 9.4% ($229 billion) of the $24.4 trillion under professional management in the United States was invested in accordance with socially responsible criteria. Much of this money is undoubtedly in college endowment funds and other institutions, and portfolios held by environmental and other civic-minded organizations. But a substantial amount, $179 billion, was invested in Socially Responsible funds. So, if you want to invest with a clear conscience, there are many good opportunities and you'll obviously be in good company.

The one catch here is that this sector is unique in that it's not really a sector. It's actually more akin to style and strategy, but it's treated as a sector. Some of the Socially Responsible mutual funds are broadly diversified and others fall into subsectors like Alternative Energy and Green investing. So their potential for diversification or over-weighting must be evaluated on an individual basis to determine if any given fund is a good fit for your portfolio.

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