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The concept of a socially responsible fund was hitherto unknown to Indian investors, it is a popular investment vehicle in the US mutual fund market. Ethical funds, as they are popularly called, cater to the need of a population segment with personal ethical codes, which are not in line with normal investment practices. These funds consider environmental, social and animal cruelty issues before investing in a company. Thus, ethical funds will follow a process of elimination while taking investment decisions and will not invest in companies that are engaged in running abattoirs, meat processing and packaging, production of liquor, tobacco, leather goods pesticides, pisciculture and sericulture.

The first socially responsible fund, to be launched by JM Asset Management Company, is christined JM Heritage Fund. The fund will to cater to the needs of investors with strong personal ethic codes. The scheme, structured as a balanced fund, will invest in equity and debt, would focus on ahimsa. The 'Ahimsa' fund would provide investors with two options - income and balanced. The second plan is a growth-cum-income plan that invests in both equity and debt. A small percentage of the fund management fees is kept away for donation to charities involved in animal welfare. Typically, JM Heritage fund would invest in areas like petrochemicals, auto, metals, banking and finance, engineering and technology. It might also consider FMCG and pharma companies, provided such outfits are above board with respect to cruelty issues.

JM Mutual Fund roped in animal rights activists and organisations such as Beauty Without Cruelty and People for the Ethical Treatment of Animals as advisors to its ethical fund. JM MF, during the process of shortlisting the companies in which the fund will invest, wrote to about 1,000 companies, seeking response to questions on their operations. A number of interesting issues came to light. Dabur, for instance, does not experiment with animals; yet, it uses deer horn as an ingredient for Chyawanprash. The company, therefore, does not fit the bill. It is also noted that advanced bio-tech companies are trying to replace animal testing.

In the US, where there is a vibrant market for ethical funds, not all socially responsible funds embrace the same principles. Some leave all companies in the nuclear power and weapons industries, while others don't buy liquor, gambling, or tobacco stocks. Other funds pick up companies according to their worker relations, community involvement, or product-safety records. That apart, funds base their stock pickings on religious principles as well like Catholic principles, Mennonite principles and conservative Christian principles.

For an investor just looking for performance, there's no reason to buy a socially responsible fund. There is no guarantee of high returns since the performance, as in case of other funds, will depend only on the ability of the fund manager and the stocks he picks. But, for an investor, who is very religious and has ethical convictions, Ethical Funds are the right funds to invest in.

S Suma

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