ETHICAL FUNDSETHICAL FUNDS Lilian KNIJNIK

Renjie XIA

Victoria OSHINOWO

MUTUAL FUNDS

INVESTING IN FUNDS

ETHICAL FUNDS

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FINAL CONSIDERATIONS

ETHICAL FUNDS

Designed for small investors who wish to take advantage of a highly diversified

portfolio managed by professionals (fund managers) without a large amount

of capital.

To invest in companies that are growing at a rapid pace.

To generate income on a regular basis.

To preserve an investor's money.

OBJECTIVES OF MUTUAL FUNDS

ETHICAL FUNDS

MUTUAL FUNDS

A pool of liquidity/money that an investment company places in

various securities and/or derivatives with the goal of producing a

certain return.

A professionally managed

investment product that sells shares

to investors and pools the capital it

raises to purchase investments

ETHICAL FUNDS

HOW MUTUAL FUNDS OPERATE

SPONSOR

BOARD OF TRUSTEES

ASSET MANAGEMENT COMPANY

INVESTORS

ETHICAL FUNDS

1. OPEN-END FUNDS: Sells and buys back its shares. Trades at Net Asset Value (NAV).

2. CLOSED-END FUNDS: Trades its shares in the market like common stock. Unredeemable.

3. LOAD FUNDS: Sold through brokers and FA’s, and charge upfront fees.

TYPES OF MUTUAL FUNDS

4. NO-LOAD FUNDS: Sold directly by the investment company. No upfront fees.

ETHICAL FUNDS

1. Equity Schemes

CATEGORIES OF MUTUAL FUND SCHEMES

2. Bond Schemes

4. Balanced Schemes

3. Money Market or Liquid Schemes

ETHICAL FUNDS

Offer several options such as growth plan, dividend plan and dividend reinvestment plan.

Enjoy a tax advantage: the return is exempt from income tax .

Classified Into:

Broadly diversified, Industry–specific, Mid-cap funds, and Index Funds.

Investment in government and corporate bonds of medium and long duration.

The bulk of their income arises from interest and some part from trading of bonds.

Bonds are exposed to interest rate risk.

Bond schemes are not always as safe as they may appear to be.

1. Equity Schemes 2. Bond Schemes

ETHICAL FUNDS

They invest in money market instruments which are of very short-term maturity.

Competes with bank deposits as a method of holding liquid balances.

Investments in both equity and bonds.

A mix of equity and bonds in a single scheme to suit the conservative investor.

No tax advantage like equity schemes.

3. Money Market or Liquid Schemes 4. Balanced Schemes

ETHICAL FUNDS

The NAV is the dollar value of one share of a fund subject to a possible sales or redemption charge

The NAV is the price per share an open-end mutual fund pays when you redeem, or sell back, your shares.

VALUE OF FUND’S PORTFOLIO + MONEY WAITING TO BE INVESTED - OPERATING EXPENSES NUMBER OF OUTSTANDING SHARES

NET ASSET VALUE (NAV)

ETHICAL FUNDS

Management Fees:

To cover running expenses

Average fees are 1-1 ½% per year, lower for bond funds.

12(b)-1 Fee:

An allowed to cover “sales and marketing” costs

Funds may charge a maximum of 1% per year;

FEES AND COMMISSIONS Front or Back-end Loads:

Fees that fund companies charge investors when they purchase or sell a fund. You may pay a maximum 8.5% fee upfront (front-end load) when you buy or when you sell (back-end load).

ETHICAL FUNDS

ETHICAL FUNDSETHICAL FUNDS

ETHICAL INVESTING

SOCIAL INVESTING

Socially Responsible Investment

GREEN FUNDS

A mutual fund in which the asset managers make

investment decisions based upon some ethical code.

An ethical fund is marketed to investors who may have

moral objections to certain investment vehicles or

companies.

ETHICAL FUNDS

ETHICAL FUNDS

For example, an individual may have a moral objection to smoking

buys shares in a mutual fund that refrains from investing in tobacco

companies.

a fund's ethics may inform where it makes investments

(e.g. in environmentally friendly companies) and where it

does not (e.g. in arms manufacturers).

ETHICAL FUNDS

ETHICAL FUNDS

• Medical animal testing • Cosmetic animal testing

• Medical research

• Genetic research

• Cloning

• Arms

• Military development • Alcohol

• Tobacco

• Pesticides

• Nuclear weapons or testing

• Deforestation

• Pornography

Discourage:

ETHICAL FUNDS

• Animal welfare and rights • Human rights

• The environment and the ecology of different arts of the world • Controlling pollution

• Helping third world countries

•Finding renewable energy sources

• Waste management • Water management

• Forestry

• Community relations

• Energy conservation

• Public transport

Encourage:

ETHICAL FUNDS

Some indicators

Domini 400 Social Index A market cap weighted stock index of 400 publicly traded companies that have met certain standards of social and environmental excellence.

This relatively new index was designed to help socially conscious investors weigh social and environmental factors in their investment choices.

Potential candidates for this index will have positive records on issues such as employee and human relations, product safety, environmental safety, and corporate governance. Companies engaged in the business of alcohol, tobacco, firearms, gambling, nuclear power and military weapons are automatically excluded.

ETHICAL FUNDS

Difficulty of defining SRI. There's no one definition: no two clients have the same ethical stance and no two funds have the same ethical criteria.

During the financial crisis, when many mainstream funds positioned themselves defensively – in commodities and financials – many ethical funds had to find other ways to ride the storm.

INVESTING IN ETHICAL FUNDS: PROBLEMS

If commodities are booming, ethical funds may have to work that bit harder to achieve returns.

ETHICAL FUNDS

Some indicators

http://www.domini.com/domini-funds/Daily-Prices---Performance/index.htm

http://www.domini.com/domini-funds/Daily-Prices---Performance/index.htm

ETHICAL FUNDS

Some indicators

There's a less diverse range of asset classes and ethical funds may experience more volatility. But ethical doesn't have to mean low returns.

ETHICAL FUNDS

Final Considerations Clients are pro-actively seeking ways to understand their contribution to society.

Campaigns across all walks of life have encouraged people to make positive changes

and become more socially responsible.

In relative terms, it is also worth noting that clients more likely to have disposable

income for long-term investments, are also proven to be more eco-aware.

ETHICAL FUNDS

Ethical funds may not always give as high return as mutual funds, but are

proven to be more stable during low market seasons and crisis. Also, the

Ethical Funds have established commitments to make a

positive contribution to the society.

References

http://www.investopedia.com/terms/d/domini_400.asp

http://www.domini.com/

http://www.neiinvestments.com/Pages/AboutNEI/AboutEthicalFunds.aspx

http://financial-dictionary.thefreedictionary.com/Ethical+Fund

http://financial-dictionary.thefreedictionary.com

http://www.ethicalinvestors.co.uk

http://web.streetauthority.com/links/mutual-funds.asp

http://www.icifactbook.org/fb_ch5.html

http://docs.google.com/viewer

http://en.wikipedia.org/wiki/Stock_market_index

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