Humans are products of various aspects, such as their values, emotions, actions, objectives, etc. They are highly influenced by these aspects. Moreover, in countries like India, due to the significant existence of joint families and rich cultural heritage, values become a crucial part of human life. Usually, these values can be personal, family-based, societal, etc.
Some individuals apply them in almost all the horizons of their lives. Their investments are also based on such values. They screen the companies and check whether they align with those values before investing. This attitude has made value-based investing a widespread approach.
These investments do not focus on generating returns and are also known as non-traditional investments. Let’s explore some unique investment options which can align with investor’s values.
Why returns aren’t always the only goal in investing
In today’s era of pacing lifestyle, it is perceived that everything evolved only around earning money. However, money is only a medium to attain the desired objectives. Along with personal objectives, our elders always advise us to work for the welfare of society and the world.
Some individuals also apply these philanthropic values in their investments. They focus on how their money is used to align with their welfare objectives. These individuals seek companies which promote wider welfare activities. Moreover, they abstain from investing in entities working against their values.
Money is a crucial resource for businesses. This value-based investing approach is necessary to promote environmental values, governance regularities, ethical values, conscience and righteousness. Therefore, money and returns can not be the sole focus of every investment.
Must read: Sustainable and Ethical Investing
Factors to consider in non-traditional investments
Investors should consider some of the following attributes to analyse a company and make investment decisions:
- Above personal values, some basic business principles, such as employment generation, ethical management, regulatory compliance, etc., should be considered.
- Investors should specify their investment aspirations, value and risk appetite for better screening
- Analyse the business in detail to configure its operations and focus market, stakeholders, future goals, etc.
- Investors can start value-based investing by allocating some part of their portfolio to it rather than concentrating their investments. Further, the profit earned from the rest investments can be invested in these assets.
The 4 non-traditional investment options
Here is a list of some of the most popular investment instruments for value-based investing.
#1 ESG mutual funds
Apart from regular profit objectives, a business has a significant impact on people’s lives with its policies and operations. Therefore, some investors focus on contributing to environmental, societal, and governance values while investing. ESG funds (Environmental Social Governance) focus on catering to such investors.
They specify their investments in particular sectors and themes, such as renewable energy, healthcare, employee welfare, and ethically strong businesses. Further, several other investment instruments such as equity shares and Alternative Investment Funds (AIFs), offer ESG-based investing options.
Also, read about ESG: A new formula for investing success
#2 Social impact bonds
These are lesser-known investment alternatives which can make a significant impact on driving the desired results on a large base. In social benefit bonds, a contract is signed with a public sector unit (company), a government authority to work for a specific objective that can focus on the welfare of the greater population.
These are popular in countries like Australia and the United States of America (USA). They are also known as pay-for-success bonds. Recently, India’s first social impact bond was established by the National Bank for Rural and Agricultural Development (NABARD).
Investors provide the basic finance for implementing the cause to the government, and it pays the ventures only when the desired outcome is achieved. Investors may earn more or less returns in this process, but their funds can be used for specific purposes.
#3 Impact investing
These days, it is one of the most prominent investment trends throughout the world. In this, investors seek to provide the capital for non-profitable organisations and businesses that can create a measurable, positive, and sustainable social impact with their operations or products.
Alongside their regular operations, they focus on value-based investing that can be sustained through modern challenges of environmental damages, income inequality, rehabilitation, etc. As of 2023, impact investments in India have almost increased by 2.3 times in the past five years.
#4 Shariah-compliant mutual funds
These are unique investment options for investors abstaining from investing in companies that manufacture tobacco, pork, alcohol, gambling, and other unethical activities. These mutual funds adhere to the Islamic Laws of Shariah.
The mutual fund schemes designed to match these objectives will be assessed based on quantitative and qualitative aspects of the companies that are part of the portfolio. It may narrow the investment horizon, but they seek to avoid investments in the above-mentioned sin sectors. .
Pros and cons of non-traditional investments
| Pros | Cons |
| Aligns with investor’s specific values, which can further promote society’s welfare. | Investors may miss the market returns and can potentially stagnate the money value. |
| It can be sustainable in nature, which can help in long-term attitude towards investment. | Specific investment objectives restrict their investment universe and can concentrate the investments. |
| Brand reputation is crucial to such companies, which also can help in their innovation and growth. | The qualitative impact of these investments can be difficult to measure. |
Bottomline
Value-based investing is rare and quite opposite to the traditional style. However, it can drive responsible, philanthropic and sustainable qualities among the investors. Moreover, when funding is motivated by some specific values, businesses also seek to work with those values.
An interesting read: Socially Responsible Investing
FAQs
- What is a non-traditional investor?
Individuals seeking investment in unconventional instruments without the sole objective of earning profit are known as non-traditional investors. These investments are value or objective-based and alternative to the traditional instruments. These individuals have a broad investment horizon.
- What are traditional vs non-traditional investments?
These investments differ based on their risks, liquidity and financial objectives. Traditional investments have better liquidity as investors are accustomed to it. However, non-traditional investments may be less liquid and based on specific values or objectives.
- What is a non-traditional investment approach?
This approach is concerned with investments in lesser-known funds with specific objectives. Usually, these objectives avoid investment in specific types of companies that contradict the investor’s values or promoting companies which are aligned with these values. Investors willing to bring a significant transformation adhere to this approach.
- What is a non-traditional asset?
These are assets which attract investments owing to specific values such as sustainability, ethics, environmental concern, etc. Some of these assets are social impact bonds, impact investments, ESG funds, Shariah BeES, etc. These assets are concerned with fulfilling only the base value, and profit is an ancillary focus.
- What is a value-based investment?
Investments which accompany specific values, such as environmental concern, governance, impact investing, ethical consideration, etc., are known as value-based investment. Here, the investors focus only on the fulfilment of their values and not the returns from investment. Usually, affluent investors are accustomed to this approach.
