Mutual Funds: What are the benefits of investing in ESG funds?

Although ESG Fund has been in place in India for more than five decades, investment in this system is still at a nascent stage, with only a few AMC offer plans. But ESG funds have a strong trajectory and are gaining popularity.

What are ESG Funds?

According to FYERS co-founder and CEO Tejas Khode, ESG investing has been around for more than 50 years, and it is about considering the impact of investments on the environment, society and governance. Which is a fancy way of saying that companies should be more responsible and ethical towards the environment and society.

This type of investment is becoming more popular, he said, especially among Millennials who care about the future. In fact, $37.8 trillion has already been invested in ESG funds, and this number is expected to grow to $53 trillion globally over the next few years.

However, in India, Khode said, “ESG investing is still in its nascent days, with only a few schemes offered by AMCs.”

He informed that the regulator is trying to create awareness and provide guidelines through various measures. But there are also challenges such as greenwashing, which make it difficult to measure the true impact of ESG factors on financial performance. Companies need to step up and be more responsible for the future.

Some of the popular ESG funds currently available in the market are:

Why Invest in ESG Funds?

“Investing in an ESG fund can provide a way for investors to align their values ​​with their investments, potentially improve financial performance and manage risk,” Khode said.

Technically, ESG funds invest in companies that have a positive impact on society and the environment while avoiding companies that engage in harmful activities.

“This could be particularly attractive to investors who want to make a positive impact through their investments,” he said.

Moreover, Khode said, ESG funds have shown strong financial performance in recent years. Companies that prioritize ESG factors are more innovative and efficient, which can lead to long-term sustainable growth.

Additionally, companies with strong ESG profiles are less likely to face legal and reputational risks that could negatively impact their financial performance and help investors avoid companies that may face legal or regulatory action. , are at risk of reputational damage, or financial instability.

Disclaimer: The views and recommendations given above are of individual analysts or broking companies and not of Mint. We advise investors to do due diligence with certified experts before making any investment decision.