ESG mutual funds have gained immense popularity as more investors seek to align their portfolios with environmental, social, and governance (ESG) principles. For new investors, finding ESG mutual funds with low fees is essential to ensure maximum returns while supporting companies that make a positive impact.
In this guide, we’ll introduce you to some of the best ESG mutual funds for new investors and show how you can get started without sacrificing returns to high fees.
What Are ESG Mutual Funds?
ESG mutual funds are investment funds that focus on companies with strong environmental, social, and governance (ESG) practices. These funds screen companies based on criteria such as carbon footprint, labor practices, board diversity, and ethical governance.
Why Choose ESG Mutual Funds with Low Fees?
For new investors, low-fee ESG mutual funds provide an opportunity to invest in companies that are working toward a better future, without seeing your returns diminished by high management fees. Over time, lower fees can significantly boost your overall portfolio returns.
Top 5 Best ESG Mutual Funds with Low Fees for New Investors
1. Vanguard FTSE Social Index Fund (VFTAX) – Best for Low-Cost, Broad ESG Exposure
The Vanguard FTSE Social Index Fund is a top choice for new investors seeking low-fee ESG mutual funds. This fund tracks the FTSE4Good U.S. Select Index, which focuses on companies with strong ESG practices, excluding industries like tobacco and weapons.
- Expense Ratio: 0.14%
- Minimum Investment: $3,000
- Why It’s Great for Beginners: With its low expense ratio and broad exposure to the U.S. market, it’s ideal for new investors seeking a simple way to enter the ESG space.
2. Parnassus Core Equity Fund (PRBLX) – Best for ESG-Focused U.S. Equities
The Parnassus Core Equity Fund is a long-standing ESG mutual fund that focuses on U.S. large-cap companies with a strong commitment to ESG principles. This fund avoids industries with negative environmental impacts, such as fossil fuels.
- Expense Ratio: 0.87%
- Minimum Investment: $2,000
- Why It’s Great for Beginners: It’s a good option for those looking for exposure to U.S. equities while maintaining a focus on sustainable investing.
3. Fidelity U.S. Sustainability Index Fund (FITLX) – Best for Low-Cost ESG Investing
The Fidelity U.S. Sustainability Index Fund tracks the MSCI USA ESG Leaders Index, which includes U.S. companies with high ESG ratings relative to their peers. This fund offers low fees and is a great option for beginner investors.
- Expense Ratio: 0.11%
- Minimum Investment: $0
- Why It’s Great for Beginners: It’s one of the lowest-cost options in the ESG mutual fund category, making it ideal for new investors.
4. Calvert Equity Fund (CSIEX) – Best for Actively Managed ESG Exposure
For new investors looking for actively managed ESG mutual funds, the Calvert Equity Fund provides exposure to U.S. companies that meet high ESG standards. The fund managers prioritize companies with a clear focus on sustainability and social responsibility.
- Expense Ratio: 0.85%
- Minimum Investment: $1,000
- Why It’s Great for Beginners: It offers the benefits of active management, where the fund managers pick stocks based on ESG criteria, which can be appealing to investors seeking more hands-on investment options.
5. iShares MSCI KLD 400 Social ETF (DSI) – Best for ETF Alternative to Mutual Funds
Though technically an ETF, the iShares MSCI KLD 400 Social ETF provides an alternative for new investors who want the benefits of an ESG-focused fund without the high minimum investments often required by mutual funds. This ETF invests in U.S. companies with strong ESG practices.
- Expense Ratio: 0.25%
- Minimum Investment: No minimum (buy like a stock)
- Why It’s Great for Beginners: It offers the benefits of low-cost ESG investing with no minimum investment, perfect for new investors who want flexibility.
How to Choose the Best ESG Mutual Fund with Low Fees
When selecting the best ESG mutual fund for your portfolio, it’s important to consider the following factors:
1. Expense Ratio
The expense ratio is one of the most important factors to consider. This is the percentage of your assets that go toward the fund’s management fees. For new investors, finding low-fee ESG mutual funds is crucial because high fees can reduce long-term returns.
2. Minimum Investment Requirements
Some mutual funds require a significant minimum investment, which can be a barrier for new investors. Look for funds that have low or no minimum investment requirements, or consider ESG-focused ETFs if you prefer more flexibility.
3. ESG Criteria
Different funds have different ESG screening criteria. Some funds exclude certain industries like tobacco, weapons, or fossil fuels, while others may prioritize companies with strong governance practices. Review each fund’s approach to ESG screening to ensure it aligns with your values.
4. Performance and Risk
While ESG investing is about more than just financial returns, you’ll still want to consider a fund’s historical performance and risk profile. Look for funds that have a strong track record of balancing ESG impact with financial performance.
Why Low Fees Matter for New Investors
As a new investor, it’s essential to understand how fees can affect your returns. High fees can significantly erode your gains over time, particularly when compounded over many years. For this reason, choosing ESG mutual funds with low fees is key to ensuring that your investments grow efficiently.
Example: How Fees Impact Returns Over Time
Consider two mutual funds, one with an expense ratio of 0.10% and another with an expense ratio of 1.00%. Over 20 years, even a small difference in fees can lead to a significant gap in your overall returns. By choosing low-fee ESG mutual funds, you can keep more of your money working for you.
Conclusion: Best ESG Mutual Funds with Low Fees for New Investors
For new investors looking to balance sustainability with profitability, these ESG mutual funds with low fees provide excellent opportunities. Whether you opt for the Vanguard FTSE Social Index Fund for broad exposure or the Calvert Equity Fund for active management, these funds offer a way to invest in companies making a positive impact while keeping costs low.
By carefully selecting low-fee ESG mutual funds, you can grow your wealth while contributing to a more sustainable and responsible future. Start your journey into ESG investing today by choosing a fund that aligns with both your financial goals and ethical values.