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What is an Ethical Investment?

What is an Ethical Investment?

We all know that the purpose of Investment is wealth creation, growing the wealth from existing wealth or from savings. But the question is, should wealth be created through any means social or unsocial, ethical or unethical, that harm the society and the mankind at large and create a divide of rich and poor which keeps increasing every year as a result?

The philosophy of Ethical Investments is a different from the conventional investment definition, primarily one needs to understand the distinction between the ethical and conventional finance. Ethics is a subjective term and what is harmful for some may be perceived to be beneficial for some, hence we need to understand what ethical and unethical means in terms of money and finance. Since prehistoric days money has been the absolute necessity and man since then has not changed and not yet realized, that how we earn or the way we earn is far more superior and imperative than how much we earn. Economic maximization being the objective of conventional economics have failed and ignored the economic welfare hence created a wide divide between the haves and the have nots, thus so much of disparity, hardship, under nourishment, anti-social activities, crime and despondency. But at the same time all is not so unwell and there is a hope, as there is a decent section of businesses that are ethically correct. According to our ethos those businesses that are harmful and unethical to the society like the Gambling casino, Alcohol, Tobacco and its products, Interest based banks and Finance companies, derivative securities trading, vulgar entertainment, Meat, Distillery and Manufacturers of Weapons of mass destruction, all these business in some way or the other are harmful for the entire mankind. By investing in these companies, we are inadvertently partnering with them. Thus, we believe that buying the stock of these companies for investments should be discouraged to make the world ethically comprehensive, hence our ethos doesn’t permit us to advise such stocks for buying.

There is one more dimension to ethical and socially responsible investing. We believe investing in equities of companies who do good business and undertake good governance. But we also ought to know the cascading effect of interest-based debt activities of the company and its interest based incomes, historically it has been proved that interest based business activity creates nothing but an inflationary bubble and over a period and bursts every 40 to 50 years and as a result erodes most of an investor’s wealth and these companies often give negative or very marginal returns, thus destroying wealth rather than creating it. Interest is not asset based but just paper based, banks creates supply of money and gives it to companies and in the down turn of the business cycle the companies fail to pay interests and loans rendering the company bankrupt, hence we ignore companies with high debt and high interest incomes and believe these companies to be deemed unethical and even the markets don’t favour such companies consequently as they fetch less price in the equity markets thus make a bad case for investments , so as a policy we don’t advise stocks of the companies that are in high debt and high interest incomes. It is observed historically that company with low debt and low interest incomes tends to do better in the stock markets in the long term. Companies with low debt discharges higher dividend and gets higher premium on the markets thus demonstrates better investor responsibility.

Ethical investors seek to invest in firms which make a positive contribution to the quality of returns with stability, and social responsibility. Ethical or social investing gives individuals the power and the choice to allocate their saving capital towards companies that are in line with their personal views, whether they are based on environmental, religious, social, moral or political precepts.


Need for Ethical Investments 

One must recognize that the most influential part of modern life today is the money system, and until we change the way we do business, the institutions will continue to abuse people’s wealth and welfare in the name of profit. Socially Responsible or Ethical Investment aims to maximize long-term profits balanced with concern and respect for wider social and moral issues. It is often felt that an individual cannot influence the money system alone, but we strongly believe that the faster the Ethical Investments grow, greater will be the pressure on the investment institutions like the Mutual Funds, Banks and Insurance companies to move away from those areas involving socially irresponsible and unethical practices, particularly after the debacle of 2008.

The rapidly increasing concern amongst the public is the wide spread unequal distribution of wealth.

Ethical Investments, a Gross Outperformer

It is apparently getting clear and accepted that the socially and ethically responsible companies by default and definition will prove to be a better financial investment going forward. The rigorous processes involved in screening an investment; whether ethical or not, can help to identify companies that in the long term, have a great potential to do well. There is a wider acceptability and investors will have higher willingness to invest in such companies, thus incrementing higher market capitalization. The companies with higher debt and socially irresponsible business will gradually get phased out, as the society at large in their conventional wisdom will reject these businesses, hence there will be substantial erosion of the values of such companies. But on the other hand, ethically sound companies, enjoying more favour, will gradually create wealth for Investors.

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