How to filter through thousands of funds to find ethically aligned options?

In India, there are thousands of mutual funds to choose from, and it can feel like a daunting task to find the right one. Many investors prioritise return, but some investors also want their investments to align with their own values and preferences. This may involve investing in companies that have responsible business practices or excluding certain industries from investments. 

When selecting an ethically aligned fund to invest in, performance shouldn't be the only factor taken into consideration. Having a clear knowledge of a fund's investment philosophy, holdings and goals allows investors to make choices that align with their financial goals and beliefs. 

Why do some investors look for ethically aligned funds?

Each investor has their own set of priorities. Some put emphasis on the returns that they can get, while others feel like considering how and where their money is put to use. 

Ethically aligned investing involves picking a fund that is based on a set of values or investment principles. For instance, some investors may prefer funds that take into account environmental, social, and governance (ESG) criteria, or other investors may prefer Shariah compliant mutual funds. 

While there are different strategies for different investors, the ultimate intent is the same. It is to invest in a manner that is in line with one’s personal preferences while keeping long-term financial goals in mind.

How can you narrow down your options?

There are many funds available, and having a defined method of selection can make the process easier. 

Define your investment priorities

The first step is to determine what is most important to you. Determine your preference if you want to encourage certain industries, steer clear of particular sectors, or invest in funds that have a specific investment philosophy. Defining your priorities helps narrow down your list of funds that fit your expectations. 

Review the fund's investment objective

Each mutual fund will have its investment objective and strategy in its official documents. These can give insight into the fund's investment philosophy, the type of stocks they choose to invest in and whether their strategies match your investment objectives. This is especially important when you're comparing funds that have similar investment themes. 

Check the portfolio holdings

The portfolio of a fund shows the companies and the securities that the fund is investing in. By looking at these holdings, you can decide if the fund aligns with the principles or values you are searching for. The fund portfolio is updated periodically, and it can be accessed from the website of the asset management company. 

Use research tools to compare funds

Tools like a mutual funds screener allow you to narrow down a list of funds based on parameters like categories, expense ratios, risk ratings, fund sizes, and investment approach. After having a short list, check each fund out carefully, rather than just picking one because it's popular or has had good performance recently.

What else should you consider before investing?

An ethically aligned fund should also align with your financial objectives and risk tolerance. You should consider determinants like diversification, expense ratio, investment time frame, and investment approach. 

Moreover, it is crucial to read the Scheme Information Document (SID), Key Information Memorandum (KIM) and the most recent factsheet before making an investment decision. When investing in a fund, you should invest time and attention to consider the ethical and financial dimensions in order to make an informed choice. 

Bottom line

When looking for an ethically aligned mutual fund, there are several aspects to consider beyond just making comparisons of the returns they offer. By learning the fund's investment goal, portfolio and overall strategy, you can identify choices that align with your values and your financial goals. In fact, a thoughtful and well-researched strategy can help you select a fund that is in line with your individual preferences and investment objectives.