Church construction has become big business. With more than $20 billion spent each year on new churches, financing those buildings has also grown into big business. Last November, Houston-based investment firm Capstone Asset Planning launched the first-ever mutual fund composed of church bonds.

Most churches finance building projects with capital campaigns and mortgages. But many churches also raise money by selling bonds. The purchaser of a bond loans money to be repaid at a specific time with a specific rate of interest. Churches sell those bonds locally, mostly within their churches, says Chester Reid, president of California Plan of Church Finance. But Reid says, "Growing churches want to focus on ministry, not selling bonds."

Reid, whose company advises the new fund and also lends to churches, says churches can simply sell their bonds to the fund—and the fund, in turn, can sell them to institutional and individual investors anywhere in the country. Thus, the Capstone Church Bond Fund.

Opening the market wasn't easy, says Don McFadden, Capstone senior vice president. Until recently, there had been no formal market to trade church bonds and no regulation by the Securities and Exchange Commission, which meant such bonds were inelligible for institutional investment. Investors could not buy the bonds with 401(k) money, for example.

So Capstone created the Capstone mutual fund, which, unlike bonds, allows investors to sell shares back to the fund every quarter. "This brings church bonds another step toward the mainstream," McFadden says.

The fund should be treated like any other investment, by reading the prospectus and doing due diligence, says Dick Towner, executive director of Good Sense, a stewardship ministry of the ...

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