If helping to save the planet while you lie in the bath or peruse the internet sounds appealing, then investing your money in an environmental fund could be for you.

But you may have to do some homework before you can be sure your money is going in the right direction, as there are no hard and fast rules about what makes an ecologically sound investment.

While ethical funds are plentiful, funds that focus primarily on companies that try to help the environment are in shorter supply.

One of the main players in the market is Jupiter. It has three “green” funds, but the Ecology fund and Green fund are probably the closest fit for those who want to invest in companies working to benefit the planet. Ironically, its Environmental Income fund is less apt because it concentrates on UK companies that are “actively managing their environmental and social impact” regardless of main business practice.

The Ecology and Green funds have six criteria for investing: clean energy, water management, waste management, green transport, sustainable living and environmental services.

Investors who think that there might be an element of sacrifice in investing in such noble causes will be pleasantly surprised. The Ecology fund came top out of 180 in its sector over the past year, though returns over five years have been less stellar, coming 58th out of 138 in the sector.

Charlie Thomas, who manages this fund in addition to the Green Investment Trust, says: “There are opportunities for investment growth in and around environmental solutions. Environmental problems are not going to disappear.”

In fact, things are hotting up. “Increased legislation in this area will make a difference,” Mr Thomas says. “Corporate commitment is also having an effect. Tesco has promised to invest £100 million in energy efficiency. This may not seem like much to Tesco, but it is a big boost to the sector and will have a drip-down effect.

“But the main driver is consumer action. Increasing numbers of people want organic produce and want to conserve energy. If more consumers pick up on these trends, then it really is gloves-off.”

Investors who fancy a slice of the action will have to pay a 5 per cent initial charge, as well as an annual management fee of 1.5 per cent for the Jupiter Ecology fund. This is quite a high price, according to James Norton, of Evolve Financial Planning, the independent financial adviser (IFA), who prefers the lower-cost Impax Environmental Markets Fund.

The Impax investment trust has £230 million under management and invests only in companies that it considers to be “pure play”. This means that at least half the business has to be involved in alternative energy, waste or water. Its biggest holding is in Itron, a US company that makes automated electricity meters that send data direct to power companies to help them to minimise wasted energy.

Blackrock MLIM also has two funds that may appeal to the environmentally minded. The New Energy Fund and New Energy Technology Trust both operate on broadly the same guidelines — investing in global companies that produce alternative energy or are helping in its development.

Poppy Allonby, co-fund manager of both funds, says: “When we were looking at the energy sector in 2000, we realised that renewable and alternative energy was the fastest-growing sector. We identified about 350 companies; there are now about 900.”

Increasing numbers of these companies are also moving into the black. Ms Allonby says: “Today 80 per cent of the companies we invest in are profitable. A couple of years ago only about a third had positive net earnings.”

Wherever you decide to invest, don’t expect too smooth a ride, says Mr Norton. “These types of funds are fairly volatile,” he says. “They fall into the same categories as sectors such as commodities and technology, in that they are largely driven by fads and fashion.”

Short-term investors, therefore, should also steer clear. Mr Norton says: “Green funds are not an instant recipe for success. People keen to invest should make them a small part of a portfolio and leave money there for the long term.” However, Anna Bowes, of AWD Chase de Vere, the IFA, says that you can limit the risk. “It is a speculative sector,” she says, “but you could choose a protected product.”

She suggests Société Géné-rale’s energy protected fund, linked to the World Alternative Energy index. The fund offers 100 per cent capital protection for those who keep their money in for the full six-year term.

If the index has risen by the end of the term, investors will receive 80 per cent of the growth. Investors should bear in mind, however, that they will receive no dividend income for the duration of the six-year term, which can represent a large part of stock market gains.

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