Investing with a Conscience: Examining the Performance of ESG-themed Mutual Funds in India

Abstract

ESG-focused investing options have begun to develop as investors increasingly become more aware. Although ESG investments are presently in their infancy in India, they are steadily gaining popularity. A look at the net assets managed by ESG-themed mutual funds serves as compelling evidence in this regard in this regard. Understanding ESG themes, exploring challenges and opportunities before ESG investing in India, analysing ESG fund performance using risk-return metrics and comparing ESG fund performance to a benchmark index are the objectives of the study. Based on secondary data, the study's duration runs from December 2020 to December 2023 for six funds and from December 2013 to December 2023 for one fund. The study focuses on the Direct Plan of open-ended ESG mutual funds, not the Regular Plan. The current study emphasises the Growth option over the Dividend option.

The study found that all funds beat the benchmark index in one year, and four of seven did so over three years in terms of risk-adjusted return.  Axis ESG Equity Fund generated the least risk-adjusted return in three years. Further, the Fund Managers demonstrated superior stock-picking skills. Four out of seven ESG Funds exhibited RSQ values over 0.8, which implies that those funds were adequately diversified. The Quant ESG Equity Fund stood out as the sole aggressive fund for one year. However, all funds maintained a conservative approach for three years. Quant ESG Equity Fund had the highest SIP returns for 1 year and 3 years, followed by ICICI Prudential ESG Fund. The worldwide pandemic has made investors comprehend how important it is to consider future sustainability when making investments. As a result, ESG investing is growing into an increasingly important consideration.