Q: I am interested in socially responsible investments - in particular investments that benefit the environment.

I have recently changed my KiwiSaver fund to a socially responsible investment fund. My research on such funds suggests they mainly negatively screen against particular things. For example, they avoid direct investment in armaments, alcohol, tobacco and fossil fuels.

However, using other savings, I'm also interested in investments that are positively investing in projects - for example, sustainable-energy solutions.

Do you have suggestions for ways I can go about finding share funds or projects to invest in? Are they likely to be higher risk?

A: When KiwiSaver started and I wrote about ethical investing - these days more often called socially responsible investing, or SRI - I was surprised at how few New Zealanders chose ethical funds.

These days, though, SRI is in. A recent report from the Responsible Investment Association Australasia (RIAA) says screened responsible investment funds increased in 2016 from $1.3 billion to $42.7b, accounting for 61 per cent of New Zealand's total assets under management. That's massive growth.

"However, most of the KiwiSaver providers moved to just screen out tobacco and controversial weapons, and they could take a further step with more extensive negative screens for issues such as human rights and environmental impact," says Rodger Spiller, who offers responsible and ethical investment advice through his firm Money Matters, and is a former RIAA director.

But you're interested in going one step further still - investing in companies or projects that are doing "good" work, rather than merely not doing bad work.

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And there are indeed funds that specialise in companies that are "leaders in applying environmental, social and governance [ESG] factors", says Spiller. "The fixed-interest parts of some of these funds also invest in green bonds that enable you to indirectly fund environmental projects.

"There is a great deal of variability in how funds approach ESG, so it pays to look for a charter that spells out the fund's approach, its published portfolios to see what it is actually investing in, and quarterly reports to investors that include information about engagement activity undertaken on behalf of investors."

He continues, "If you want to take a step further and invest in sustainability-theme sector-specific funds, two options identified by RIAA are sustainable agriculture through Southern Pastures and water through Pathfinder."

However, Spiller warns, "Sector-specific funds are far riskier than more diversified market funds, so these would normally be limited to a very small percentage of your portfolio." In other words, don't put too many eggs in a single sector basket.

He suggests you read the RIAA Benchmarking Report and learn more about RIAA-certified funds and certified advisers at responsibleinvestment.org.

That website also includes a nifty tool. You can choose New Zealand or Australian funds, and then choose one or two issues you want to support, such as renewable energy or social impact products, and one or two issues you want to avoid, such as tobacco or animal cruelty. Have a play with it.

Tax-free winner?

Q: Mary, last week you missed one enormous major advantage of buying rest-home shares: they pay no tax on huge earnings, helping pay dividends and reinvestment not possible to any other New Zealand company.

In the past 10 years, the three big rest-home companies have earned $2.3b, paid $500 million in dividends and zero tax.

I believe some All Blacks own shares in them, and with their professional advice they must be worth buying for today and future shareholding, as their tax-free status will apparently never be changed. I've attached a Herald article about this.

A: Oh dear. Clearly my message last week didn't get through to you.

To summarise: if you learn some good news about a company - such as its favourable tax status - professional investors will have already learnt it, rushed to buy shares and therefore pushed up the price. My main point: no matter how strong a company is, if you pay a high price for the shares, it's not a good investment.

Nor would I take any notice of which shares All Blacks own. The quality of the advice that wealthy people receive is mixed. And even if retirement-village shares are good investments for some All Blacks, I would hesitate before jumping on the bandwagon now, perhaps at a much higher price than they paid.

I'm not sure where you got the idea that these companies' tax-free status will never change. The article you sent me says, "Finance Minister Steven Joyce told NBR the government had no plans for a specific review of the tax position for retirement villages."

However, Joyce adds, "Inland Revenue is reviewing sectors of the economy that appear to pay a low level of tax relative to their accounting profits. If this work reveals a policy problem for any of the sectors, including the retirement-villages sector, the government would put this on the tax policy work programme."

Of course, Joyce's party may no longer be in power a month from now. But there are no guarantees of what a future government might do.

An important rule: don't choose any investment because it seems to be tax-favoured. A government can always change that. Sure, you could sell then. But what's likely to happen to the price you get if the tax treatment worsens? Losers buy high and sell low.

KiwiSaver fees

Q: Have recently joined KiwiSaver. I am in the departure lounge of life and have no real savings so thought I would be greedy and choose an active fund.

I picked a provider - Milford Asset Management - and registered with no problems. I read the blurb and knew that the IRD would keep my contributions for the first 90-odd days. Why, I do not know. I presume they earn interest on my money.

I checked my KiwiSaver account for the first time and noticed four equal debits in a row. When I queried my provider, it told me it was the account administration fee - X amount annually and debited monthly.

Because I had no money in the account until the IRD forwarded it, there was nothing to take out. The first month I can understand - it had to input me into the system. The following two months I had no money in thanks to the IRD, so I am trying to understand what it was administering. Not a bad living if you can get it.

I earned just over a dollar something in interest, yet paid X in administration fees. Not to mention there are still two other related investment fees to come out.

Am I correct that if it was not for the yearly government tax credits, many would actually be going backwards when all fees and taxes were taken into account?

I realise there would be a point at which this scenario would be reversed. However, that would appear in my case to be a long way off. I suspect I will have carked it before then. I would appreciate your help/input/advice.

A: Unless you've already carked - hope not! - your KiwiSaver account is probably already growing, even without the tax credits.

The small amount of interest you've received is not a return on your investment but a payment from Inland Revenue because your money sat with it for a while.

You will also receive investment returns, reported every three months. In a higher-risk fund, sometimes those returns will be negative - when the markets have fallen. But they will usually be positive and over time your money will grow.

On the four lots of fees, a Milford spokesman says, "Milford charges KiwiSaver members an annual administration fee of $36 for administering the account.

"Administration of the account starts when the account is first set up, which includes such steps as client onboarding, Anti-Money Laundering Act checks and sending initial customer correspondence. This fee is spread out over the year and charged on a monthly basis.

"This fee is distinct from the management fee, which only commences once the customer's money is received and invested."

Charging four fees in a row does seem a mean way to welcome new people into the fund, but the explanation makes sense, and the fee is small bikkies.

It's good, though, that you have your eye on fees. The management fees - as opposed to admin fees - can make quite a difference to how fast your account grows. To compare the fees on your fund with other similar funds, see the KiwiSaver Fund Finder on sorted.org.nz

Oh, and why does it take up to three months for your money to leave Inland Revenue? Basically, because it takes a while to get the money from the employer, check that's it's correct, and send it on to the provider. For more on this see tinyurl.com/Why3months

Dividend funds

Q: My brother-in-law in Canada is retired and has a scheme to buy shares that maximise dividends with the lowest possible risk to a drop in the shares' value. Apparently there is no income tax payable on dividends. Are there any funds in New Zealand with the same objectives?

Thanks for considering what is probably a dumb question.

A: There's no such thing as a dumb question about money. And yours is good enough to make it into the column!

New Zealand certainly has funds that specialise in buying shares that pay relatively high dividends.

One example is the NZ Dividend Fund, an exchange-traded fund or ETF run by Smartshares, which is owned by the stock exchange, NZX. This is a low-fee index fund, investing in the 25 higher-dividend companies among the biggest 50 companies listed on the exchange.

The tax situation is a little complicated. "Many of the dividends that the fund receives from its investments are fully imputed, but not all," says NZX. If dividends are fully imputed, that means the companies have already paid tax on their profits, so investors pay no further tax on the dividends received. On dividends that are not fully imputed, the fund pays "top up" income tax.

Adds NZX, "As all the Smartshares ETFs are PIEs, investors pay no further tax on the distributions received, and depending on their circumstances, may be able to utilise tax credits attached to the distributions from the PIE in their tax return if their marginal tax rates are lower than 28 per cent." In other words, people on lower incomes get a further tax break.

In the year ended July 31, the NZ Dividend Fund return was 4.27 per cent after fees and tax. But - as with any share fund - that return will rise and fall.

When you say the Canadian fund has the "lowest possible risk to a drop in the shares' value", that probably means it invests in companies with a solid track record. Nonetheless, the prices of all shares move up and down.

If you invest in a dividend fund or any other share fund, be prepared to watch the value of your investment fall a long way sometimes. But if you're prepared to ride out the bad times, you'll probably do pretty well over the long term.

• Mary Holm is a freelance journalist, a director of the Financial Markets Authority and Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. Her website is www.maryholm.com. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Private Bag 92198 Victoria St West, Auckland 1142. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.