GREEN INVESTMENTS AND MUTUAL FUNDS
Green Investment has become a very popular term nowadays specially with respect to Mutual Fund and Alternative Investment Fund. Let us examine what Green Investment is in reality, how the concept has originated, the reasons of its popularity in Personal Finance Sector and above all, how it is influencing the financial decisions of an individual investor.
We are keeping discussion on Alternative Investment Fund out of purview because it pertains to Real Estate sector, Personal Equity, Venture Capital etc and dominated by Corporate Finance.
Green Investment is defined as Investment of Funds in Sustainable, Non-pollutant Industries. Example of such Industries are Renewable Energy sector, such as Wind Power and Solar Energy, Automobile Industries manufacturing Electric Vehicles, Manufacturing of lithium batteries. Water and Forest Conservation Projects are other Green Investments.
Green Funds are called ESG Funds also. The whole World is drifting towards avoidance of ESG Risks. Concept of ESG has three pillars – Environment, Social and Governance. Objectives of ESG measures are – (1)Making our Planet a safe place to live without pollution in risk free environment and (2) Maximisation of Wealth of all Stakeholders in every Enterprises. Sustainable Growth and Development is another dimension of Green Investments.
Corporate Enterprises can invest in Green Bonds. They can take Green Loans also from Financial Institutions.
Let us concentrate solely on Individual Investors and their investments in Green Sectors. Mutual Funds offer one such opportunity to individual investors. SEBI Norm is that 65% of these funds have to be invested in listed shares of companies for which submission of Business Responsibility and Sustainability Report to SEBI is essential. These Mutual Funds invest in companies that meet Environmental, Social and Corporate Governance Standards and adopt ethical practices to earn profit. Common investors are recognising gradually the importance of aligning with investment with ethics and principles.
SEBI has mandated asset management companies to ensure that at least 80% of the total asset under management of ESG schemes are invested in equity and equity related instruments of any particular theme ( health care, clean water etc themes) while the remaining investment part can’t be in contrast to that strategy.
Top Five Market Leaders in terms of AUM and other factors in the field of Green Investments Mutual Funds are-
A. SBI MAGNUM EQUITY ESG FUND ( GROWTH): It is the leading ESG MF in the market with almost 50 % of market share in AUM and already 5 years old find. It has generated12.3% return in past one year. There is no lock in period. Minimum SIP amount of the fund is Rs1000.
B. Kotak ESG Opportunity Fund ( Growth): This MF investment has a current AUM of Rs1100 CR and no lock in period. Investors can invest Rs1000 through SIP.
C. AXIS ESG EQUITY FUND( GROWTH): Since inception , this fund has given 14.2% return. It’s AUM is Rs1496cr.
ICICI PRUDENTIAL ESG FUND( GROWTH): It has AUM Rs 1496 CR.
D. ICICI Prudential ESG FUND( Growth): It has AUM Rs 1216 CR. Last year, it has given a return of 12.2%. For lump
sum investment in the fund, the minimum amount required is Rs 5000.
E. ADITY BIRLA SUNLIFE ESG FUND ( GROWTH):
With an AUM of Rs 800 CR, this MF has given a return of 8.5% in the past year. The minimum SIP amount for this fund is Rs 1000.
Two more Mutual Fund Schemes invest in Green Energy – DSP NATURAL RESOURCES AND NEW ENERGY FUND and Tata Resources and Energy Fund with 5 year CAGR are 11.51% and 15.13 % respectively and Expense Ratios are 1.21% and 0.91% respectively.
ESG Mutual FUNDs will Growth in number and volume of AUM with growing focus on environmental and social issues coupled with Regulatory initiatives to promote Green Investments. At present, there are 12 Mutual Fund Schemes in India having ESG as their theme. ESG Green Mutual Funds are basically Thematic Funds. Investors are recognising gradually the potential of ESG schemes in terms of financial returns and positive social/environmental impact. The total AUM of all 12 schemes taken together is Rs 10427 CR. ESG Mutual Funds are likely to attract greater attention and witness further growth.
Three ESG FUNDs, namely SBI, Axis and Quant have completed 3 years and returned from 14% to 23% CAGR.
Why an investor should invest in Green Mutual Funds –
- Investment in Green Mutual Funds carries lower risks from certain angles.
- NIFTY 100 ESG Index has outperformed NIFTY 50 by delivering superior returns in 2020.
- ESG Mutual Funds invest in companies that utilize sustainable resources.
- Such invested companies are sensitive to the well-being of its employees, stakeholders and society as a whole.
- Such companies are committed to clean governance, hence potential risks are reduced.
ESG Score reflects how well the companies manage their ESG Risks. Research Organisations assign a score to such MFs.
AAA n AA : LEADER.
A, BBB n BB : Average.
B n CCC : LAGGARD.
Common investors should keep in mind the following points while investing in Green Mutual Funds:
- Funds are in line with the investor’s Risk Profile.
- MFs with higher ESG Scores experience a lower Cost of Capital compared to companies with lower score. It means better returns and higher safety for investors.
- ESG Mutual Funds are Thematic Funds but as a theme it is a little bit different from other kinds of themes. Thematic Funds are a little bit of volatile.
- Keep a look on Expense Ratios of such MFs.
Best part of Green Mutual Funds is that Fund Managers of such schemes don’t invest in companies that deal in products and services that are socially and environmentally harmful like tobacco, liquor and and gambling or having poor governance practices.
