Skip to main content

Why You Should Start Investing Today: 4 Benefits of ESG Funds

There are numerous options available in the market when it comes to mutual funds that you can explore and add to your investment portfolio. One such option is ESG funds, which offer potential benefits in terms of diversification, liquidity, and sustainability. The impact of investing in ESG mutual funds revolves around factors related to the environment, social responsibility, and corporate governance.  

Despite ESG mutual funds being present in India for some years now, investment in these companies is still in its early stages, with only a few asset management companies (AMCs) offering such schemes. However, ESG mutual funds have a promising future and are gaining popularity.   

Outlined below are several key factors that emphasize the importance of investing in ESG funds in India. 

  1. Risk Reduction: Companies that prioritize strong ESG practices are likely to have better risk management strategies concerning environmental and social issues. Consequently, they may experience lower exposure to potential legal, regulatory, and reputational risks. 
  2. Potential for Long-Term Returns: ESG funds have demonstrated robust long-term performance, indicating that companies with strong ESG practices are well-equipped to navigate risks and seize opportunities. 
  3. Growing Demand: The demand for ESG investments is rapidly increasing globally, including in India. This surge in demand is expected to drive up the value of ESG funds in the future as more investors seek to align their investments with their personal values. 
  4. Alignment with Personal Values: Investing in ESG funds allows individuals to align their investments with their personal values and beliefs. This empowers them to support companies that make positive environmental and social impacts. 

Suitable Investors for ESG Funds  

While ESG funds in India are still developing certain types of investors may consider including them in their portfolios. These include: 

  1. Investors who are knowledgeable about the benefits and drawbacks of ESG funds. 
  2. Investors with a higher risk appetite. 
  3. Investors seeking long-term investment opportunities. 

Challenges Faced by ESG Investments in India  

ESG investments currently encounter various challenges in India, as outlined below: 

  • Limited Availability of Reliable Data: Obtaining accurate and comprehensive data regarding a company's social, environmental, and governance performance can be challenging. Investors often rely on analysts, fund managers, sustainability reports, annual reports, news articles, and media releases. However, the credibility of available information remains a hindrance to the growth of ESG investments in India. 
  • Lack of Measurement Standards: The Indian market lacks standardized approaches to ESG investing. Various terms, such as impact investing, sustainable investing, socially responsible investing, and responsible investing, are used interchangeably. Standardization in data collection, measurement standards, and reporting methodologies is necessary to foster further growth in this field. 
  • Traditional Mindset: Some investors and fund managers perceive ESG investing as an unnecessary expense. This mindset hampers the growth of ESG investments in India. 
  • Limited Track Record: ESG funds have only recently emerged in India, resulting in a lack of extensive track records. This factor may deter some investors from exploring this investment option. 
  • Lack of Awareness: While ESG investing is gradually gaining popularity among investors, there is still a lack of awareness among many individuals. Increasing awareness about the benefits of ESG investing is crucial for expanding the market and its potential. 

In the current landscape, ESG parameters have become relevant for all businesses, as companies recognize their significance. The demand for greater transparency from investors, shareholders, employees, clients, and regulators is driving the need for ESG investing. It has now become an essential aspect of the business world, particularly in the era of the "new normal." ESG investing is expected to have a substantial impact and transform business practices in India and globally. Ultimately, this shift will benefit the business community and society as a whole. 

 

Disclaimer: Mutual Funds are subject to market risks. Read all scheme related documents carefully before investing.   

Comments

Post a Comment

Popular posts from this blog

ELSS Vs Equity Mutual Funds

Newbie investors sometimes need clarification on equity funds and equity-linked savings scheme (ELSS) mutual funds. ELSS is an equity mutual fund with a tax rebate and a lock-in period. Its portfolio is similar to that of any diversified large-cap equity fund. Before making an investment decision, read everything about tax-saving mutual funds vs other equity mutual funds.  What Is an Equity Mutual Fund? Equity mutual funds invest a large part of their corpus in the stocks of companies on the lists of Indian and overseas stock exchanges. They invest across multiple market cap segments and sectors. The investment goal is long-term capital growth and appreciation. The returns are subject to risk since they are market-linked. So, you may witness short-term volatility. To ride through shorter-term market ups and downs, it's best to stay invested for 5-7 years to make the most of your investments. When you redeem your investment in an equity fund, the asset management company (AMC) levie...
Post a Comment
Read more

Maximise Your Returns: 7 Suggestions for Investing in Gold ETFs

Purchasing actual gold is a popular investment option in India. However, several things could be improved in buying, storing, and selling gold. Gold ETF funds are another option for investors wishing to diversify their portfolio with gold. A Gold Exchange Traded Fund, or Gold ETF for short, is a one-of-a-kind hybrid of a stock and a mutual fund. This is an open-ended mutual fund where the price is determined by the price of gold in real-time. Unlike mutual funds, however, gold ETF funds can be bought and sold on the stock market. On the other hand, Gold mutual funds can only be purchased or redeemed at the conclusion of each trading day based on their Net Asset Value. (NAV). Unlike direct investments in physical gold, gold ETFs, or ETFs that trade in the commodity gold, allow investors to capitalise on market opportunities in real-time. At the same time, they enable investors to invest in one of the most sought-after and desired commodities: gold. How to Invest in Gold ETFs Gold Excha...
Post a Comment
Read more

ELSS Funds: Building a Diversified Portfolio for Long-Term Growth

  Are you looking for a smart investment option that offers long-term growth potential and tax benefits? ELSS (Equity Linked Savings Scheme) funds present a optimal opportunity for investors to enjoy the best of both worlds. Not only do they have the potential to grow your wealth over time, but they also provide valuable tax-saving advantages. We will start by understanding ELSS funds, uncover their tax-saving benefits, and discuss how they can play a vital role in building a diversified portfolio for long-term growth. So, let's dive in and discover the exciting world of ELSS funds! Understanding ELSS Funds: ELSS funds are a category of mutual funds that primarily invest in equity markets. These investments are meant to generate long-term growth in value and come with tax benefits under Section 80C of the Income Tax Act under the old tax regime. Unlike traditional tax-saving instruments such as Fixed Deposits and Public Provident Funds, ELSS funds have a lower lock-in period of...
Post a Comment
Read more