Ethical Funds

 

An ethical fund is a fund that invests in accordance with different ethical values. These types of funds are usually a type of equity fund, and their common name is SRI (Socially Responsible Investments).

By Viktor, co-founder of Bifrost - Aug 21 2019

ETHICAL FUNDS

 

An ethical fund is a fund that invests in accordance with different ethical values. These types of funds are usually a type of equity fund, and their common name is SRI (Socially Responsible Investments).

 

The companies in which the funds invest thus comply with international norms and guidelines in human rights, working conditions, environment, and corruption. An ethical fund is suitable for those who want to take a stand and help influence companies to become more sustainable and ethical.

 

Normal equity funds also have ethical rules they must follow, but ethical funds have stricter rules. It is therefore important that ethical funds have a clear investment policy and information about the criteria that apply when investing.

 

Positive and Negative Screening

 

To choose its investments ethical funds have different screening methods. These are either a positive or negative screening.

 

Positive Screening: e.g. Companies should have environmental considerations and work for increased equality (the companies work consciously to improve society).

 

Negative Screening: e.g. Avoid companies in the arms, tobacco or alcohol industries (companies have a negative impact on the individual and society). 

 

Should you only have ethical funds in your portfolio?

 

Yes, you can if you want.

 

However, be aware that ethical funds are usually equity funds, which involves high risk. If you do not want to take a high risk, you can combine ethical funds with fixed income funds (which lower your risk, but also your potential return).

 

Also, it can differentiate a lot between different ethical funds, while some are basically the same - so read on carefully before buying an ethical fund so you know exactly what it is you're saving for.

 

Important things to think about with an ethical foundation

 

As mentioned, ethical funds can differ greatly, which means that fees, risk levels, and potential returns vary widely and depend entirely on how the fund invests capital.

 

Therefore, you should always read very carefully before choosing to start saving in an ethical fund (or any other type of fund). It may also be a good idea to keep an eye on how the fund allocates the capital on an ongoing basis so that they adhere to the guidelines and regulations that have been set up.

 

The most common type of ethical funds are equity funds, but they can also be fixed-income funds, hedge funds, and mixed funds. This also means that their investment strategy can vary widely. Therefore, be sure to find an ethical fund that fits your investment philosophy.

 

In addition, we all have different opinions of what is ethical and what’s not, which is why it’s important to read about the funds so that you are sure that they are in line with your own values ​​and have the same view of ethics as you have.

 

Viktor