Significance

• High oil prices may have been the wake-up call that finally got the attention of the American investing public, but for alternative energy companies, the call to go green means more than being environmentally friendly. High oil prices have finally put solar energy and wind power companies, bio-diesel fuel and ethanol producers on the investment map. Green energy mutual funds are a means for individuals and corporate investors to invest a portion of their portfolios in environmentally friendly energy companies and still enjoy the benefits of diversification.
  
  

Function

• Like all mutual funds, green energy funds seek to preserve and increase capital and produce dividends and capital gains incomes for their investors. These funds function by investing a specified percentage of their funds in the stock and debt instruments of companies that are actively involved in the research and production of environmentally sound, alternative energy sources. Diversification is achieved by insuring that each fund owns no more than a specified percentage of any one company.
  
  

Types

• Green energy funds have little in common other than their requirement to invest in environmental-friendly energy companies. Some funds invest only in domestic companies, while others permit a significant investment in foreign-owned energy companies. Some funds invest specifically in niche markets of the green energy field, such as solar power or bio-fuels. Others may invest in a broad range of companies, including traditional energy companies. Some green energy funds are designed to preserve capital and produce income, while others take a more aggressive approach and seek significant growth of the underlying companies.
  
  

Considerations

• Like any mutual fund, the value of your investment in a green energy fund is not guaranteed, and can fluctuate wildly. The New Alternatives Fund (NALFX), which has invested in alternative energy companies for more than 25 years, gained 52 percent in 2000 only to drop more than 40 percent over the next 2 years. Investors should always read the prospectus carefully before investing and remember that past performance is not a guarantee of future results.
  
  

Benefits

• Another way of investing in green energy is to look at socially responsible funds. These funds not only invest in green, alternative energy companies, but also have restrictions on the types of companies they can invest in. Some will not invest in fossil fuels, in companies that test on animals or that produce tobacco products. Others encourage micro-loans to small businesses in developing countries. By investigating a wider range of green funds, investors can earn a decent return on their investment and do good to the Earth and the people who live on it (see Resources below).