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Diversified mutual funds seen as a better bet than the ESG theme, for now

Axis ESG fund is a bit different from other ESG funds as it will invest up to 30% of its corpus in foreign stocks. The Axis ESG NFO fund closes on February 5.

, ET Bureau|
Last Updated: Jan 22, 2020, 09.23 AM IST
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Investors could skip the new fund offer (NFO) of Axis ESG Equity Fund and wait for the new investment strategy to build a track record, according to financial planners. ESG, which stands for Environmental, Social, and Governance, entails investing in companies that are conscious about these factors.

“Given that the universe of stocks available to invest is very low and no long-term track record in India, investors should wait for the fund to build a track record before investing,” said Deepak Chhabria, founder, Axiom Financial Services.

Chhabria, however, expects ESG to be one of the main criteria to evaluate investments.

The Axis ESG Fund, which will be managed by Jinesh Gopani, will build a portfolio of companies using three steps. Firstly, he will exclude sectors that are deemed harmful from a societal perspective like liquor, tobacco and defence. At the second level of filtering it will stay away from stocks that throw up ESG red flags. At the third level, the fund house will carry out a detailed qualitative ESG review of each company complementing its fundamental research.

Axis ESG fund is a bit different from other ESG funds as it will invest up to 30% of its corpus in foreign stocks. The Axis ESG NFO fund closes on February 5.

“Unless environmental and social concept is very deeply rooted within an investor, it would make sense to opt for diversified equity mutual funds only,” says Harshvardhan Roongta, CFP, Roongta Securities.

Two existing mutual fund schemes in the space have outperformed their benchmark indices. Quantum India ESG has returned 9.67% in the last 6 months, against the S&P BSE Carbonex TRI’s 6.89%.

SBI Mutual Fund, which has reclassified one of its equity schemes as an ESG fund after Sebi norms on categorization of mutual funds, has returned 16.55% in the last one year. The S&P BSE Carbonex TRI returned 10.62% in this period.

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