Socially Responsible Funds

Some socially responsible or conscious mutual funds are more defined by what they don't invest in rather than what they do invest in. Socially responsible funds choose not to invest in companies that engage in activities that go against a particular social cause, political ideology or value system. Examples of the types of companies that these funds will not buy stock in is drug companies that conduct tests on animals, tobacco companies, or gun manufacturers.

Other socially responsible funds take the opposite approach. They invest in companies that are proactive in advancing specific causes. Funds of this type may invest in companies working on the development of things like alternative energy sources or pollution reduction technology.

And, of course, funds may mix both approaches. Another factor to consider in deciding whether to invest in a socially responsible fund is what types and sizes of companies are part of the portfolio. Socially responsible funds choose to invest in various kinds of companies, including some that would be found in growth funds and balanced funds. If you want to invest in socially responsible funds, you should be certain to use the same criteria you would for any other investment vehicles when choosing among them. This means assessing the type of risk and return involved and whether it's appropriate for your age and stage of life, as well as making sure the fund is diversified and you've done all of your homework.