Quantum India ESG Equity: A new ethical fund in the offing

It invests in responsible firms that care for the environment, society and business ethics

Equity mutual funds are generally perceived to be a good investment vehicle to generate healthy long-term returns. This apart, there are also some funds which will make you feel good about making a difference to the society and the world we live in. Welcome to ESG (Environmental, Social and Governance) funds.

Quantum India ESG Equity Fund, which was unveiled on June 21, will be open for subscription till July 5. Being an open-ended scheme, investors can invest in it even after the new fund offer (NFO) closes. The fund will have a three-pronged objective — to maximise shareholder value, create societal impact through its investments and play a role in corporate longevity. The fund aims at delivering sustainable returns by investing in responsible companies that care for the environment, society and business ethics, integrity, and minority shareholders.

Quantum Mutual Fund is the second fund house in the country to launch an ESG themed fund, after SBI Mutual Fund. SBI’s Magnum Equity Fund was rechristened SBI Magnum Equity ESG Fund in May 2018.

Betting on good practices

According to Quantum MF, India’s vulnerability to climatic and geo-political risks, increasing environmental activism and the recent trend of solving them through regulatory and judicial interventions will make ESG investing a necessity in the years to come. Likewise, investors shunning companies with governance risks such as whistle-blower complaints, auditor-resignations, corporate frauds and dubious promoters reinforce the need to bet on companies with superior governance practices to create wealth in the long term.

Quantum India ESG Equity’s performance will be benchmarked to the Nifty 100 ESG Index. The fund will look for growth-oriented companies that fit into the broad theme of ESG compliance. Up to 80 per cent of the scheme’s assets will be invested in ESG theme stocks, while the fund can park up to 20 per cent of its corpus in debt and other liquid instruments to either meet redemption requests or to beat market volatility.

How has the theme fared?

In terms of performance, ESG indices have outperformed the broad market over a long time horizon. For instance, MSCI India ESG Leaders Index has outperformed MSCI India over the last 12 years. Likewise, the Nifty 100 ESG Index has delivered 11.4 per cent annualised returns since 2011, higher than the 8.9 per cent of the Sensex and the Nifty.

Quantum’s comparable peer scheme, SBI Magnum Equity ESG Fund, has delivered about 10.8 per cent gains over the past year. This is higher than the 8.6 per cent return clocked by its benchmark, S&P BSE Carbonex TRI.

While ESG as a theme has taken off well globally, it is still early days for the Indian market. However, given our fast-growing and maturing economy, an increasing focus on meeting environmental and social goals alongside financial goals will augur well for the ESG theme in the long term. The only challenge that remains to be seen is the ability to identify companies that not only comply with the ESG theme but also have a credible, sustainable and profitable business model which can weather business cycles well.

The writer is an independent financial consultant

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