Is it possible to invest in your future and not sacrifice your environmental principles? According to green mutual funds, yes. While socially responsible mutual funds have been around for years, green mutual funds are gaining in popularity. Green mutual funds are those that are investing in environmentally responsible companies, companies that are making products to reduce our carbon footprint, or both.
Green mutual funds are best for the long haul. Because they invest in small and often volatile eco-friendly companies, the short-term rise and falls can be dramatic. The major drawback? Green mutual funds are often small and specialized, so expense ratios aren't low and some carry sales load. Obviously, the more broadly diversified the portfolio, the less risk is involved.
As with any socially responsible mutual funds, screening practices vary widely, so you will want to study each fund’s investment policies. For example, some green mutual
funds focus on renewable energy companies, while others more narrowly focus on clean energy sources. In addition, like SRI’s, many green mutual funds also use shareholder advocacy to attempt to influence corporate behavior.
The number of green mutual funds is growing quickly. Better yet, many of the funds already available have outperformed the S&P 500.
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