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- There is significant investment in ESG themed schemes globally.
- 60% of ETFs in Europe overtook MSCI Europe Index in terms of performance
Globally, while there is a significant investment in ESG-themed schemes, now mutual fund houses are launching products with this theme in India too. So far 5 mutual fund houses have launched products on this theme. Although this theme is still in its initial stage in India, the fund house is seeing a lot of opportunity in the long term.
The environment, social and governance is ESG
According to ICICI Direct report ESG stands for Environment, Social and Governance Factors. Globally, investors are now thinking a lot about ESG. They are looking at companies’ environment footprints, social impact and governance factors where they can invest instead of simple financial parameters.
Investment decision is being made on the basis of ESG globally
Investment decisions are being taken on the basis of data on environment, social and governance at the global level. The Asset Under Management (AUM) of these three has tripled in the last 8 years to $ 40.5 trillion. ESG performance is risk adjusted. Even in India, the Nifty 100 ESG index has performed better at different times than the Nifty 50 or Nifty 100 index.
ESGs are large cap funds
ESG funds are mainly large-cap funds whose sectors allocation has some differences compared to large-cap mutual funds. According to SEBI regulations, ESG funds are categorized under thematic funds. It is well diversified. It does not focus on Thematic only like other Thematic funds.
Overweight in IT and Pharma
The benchmark Nifty 100 ESG index is overweight in IT and pharma sectors. While it is underweight in financial and oil gas. The ESG Fund does not invest in companies that are involved in the business of tobacco, alcohol, disputed weapons and gambling. It mostly invests in IT and pharma sectors. Invests less in sectors that are volatile sectors. These include oil and gas and metal etc.
IT and pharma sectors are considered good sectors in the long term. They have performed well in the last few quarters.
Expansion is happening in India
The world of ESG investment in India is expanding. The fund houses currently active in ESG are Axis ESG Equity Fund, ICICI Prudential ESG, Quantum ESG Fund and SBI Magnum Equity ESG Fund. Recently, Mirai Asset has also launched ESG Fund. Since all these new funds have been launched, their past return performance is not yet available.
Nifty 100 ESG returns 8.80%
If you look at the returns for the last one year, the Nifty 100 ESG TRI has given a return of 8.8%. In 5 years it has given a return of 8.3%. In 7 years it has given a return of 13.6%. The Nifty 50 TRI has given returns of 3.6%, 6.6% and 11.4% in the same period.
The importance of ESG increased with Corona
In fact, due to Corona’s disease at this time, the importance of ESG funds has increased. Companies have now become very cautious about environment, social and governance. Mutual funds in India are also cashing in on this opportunity. In Europe, 60% of Exchange Traded Funds (ETFs) overtook the MSCI Europe Index in terms of performance in the period of the Korana. 59% of ESG ETFs in the US have outperformed the S&P 500 index.
ESG scheme near five fund houses
Among the stocks in which the ESG scheme of mutual funds has invested most in India are Reliance Industries Limited (RIL) HDFC Bank, Infosys, HDFC Limited, Tata Consultancy Services (TCS), ICICI Bank, Kotak Mahindra Bank, Hindustan Unilever Limited (HUL) ), ITC Axis Bank, L&T and Bharti Airtel.