Broadly speaking, a CRA investment fund is a bond or loan fund that invests in mortgage or debt-related securities.
These funds should support community development activities such as small business development, job creation, and affordable housing initiatives. Before investing in a CRA investment fund, consider these criteria and qualifications to determine if the fund will best serve you.
1. Does the fund have good returns?
Investing in any mutual fund involves risk including the potential loss of principal; In a CRA investment fund, investors acknowledge the trade-off of a higher risk profile in exchange for greater social and environmental impact.
Therefore, at Equalize Capital, “we understand that a financial institution looking over our website is going to want to see that our product first and foremost has good returns”, says CEO Lee Calfo. A dependable investment fund would likely have publicized filings and reports that investors can browse through. These reports include important metrics and financial statements to assess the fund’s performance. You can find such reports under “Fund Resources” on Equalize Capital’s website.
Additionally, it is important to read into the form in which an investor would receive their returns. At Equalize, an investor would either receive interest income or a dividend payment depending on the fund(s) they invested in. Interest income is the amount paid to an investor for lending money, and a divided is a share of profits that gets paid out to shareholders.
2. Does the security have a clean valuation and status?
Factors such as inflation and credit rating can affect the value of securities. There are many features within bonds themselves that determine their intrinsic value as well. An investor should be aware of what they are investing in, the risks involved, and how much return to expect depending on the security. Valuation considers all features to determine an accurate present value, which is very helpful for investors to make informed investment decisions.
3. Can this fund help meet banks’ CRA requirements?
Most of Equalize Capital’s clients are banks that must meet CRA tests. Lee suggests the 2 key phrases to look for in this case are “bank eligibility” and “permissible investments”.
Bank eligibility to CRA investment funds applies to FDIC-insured depository institutions, such as national banks, savings associations, and state-chartered commercial and savings banks.
Permissible investments refer to all fund activities that would qualify under 12 CFR 25.04, which meet the criteria of the CRA rules. You can find the extensive list of qualifying activities here.