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

There is a host of mutual fund options available in the market to browse and add to your kitty. One such is also ESG funds which potentially offer the diversification, liquidity, and sustainability. The impact of investments in ESG funds revolves around environmental, social, and governance factors.

Although ESG funds have been in India for over five decades, investment in this mechanism is still in the early stages with only a few AMCs offering the schemes. But ESG funds have a strong trajectory ahead and gaining popularity.

What are ESG funds?

According to Tejas Khoday, Co-founder and CEO of FYERS, ESG investing has been around for over 50 years, and it’s all about considering the impact of an investment on the environment, society, and governance. It’s a fancy way of saying that companies should be more responsible and moral towards the environment and society.

He added, this type of investing is becoming more popular, especially among millennials who care about the future. In fact, there’s already $37.8 trillion invested in ESG funds, and this number is expected to go up to $53 trillion in the next few years globally.

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

He pointed out that regulators are trying to create awareness and provide guidelines through different measures. But there are challenges, such as greenwashing, which makes it hard to assess the actual impact of ESG factors on financial performance. Companies need to step up and be more responsible for the sake of the future.

Here are some of the popular ESG funds currently available in the market:

ESG funds have a strong trajectory ahead and gaining popularity.

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ESG funds have a strong trajectory ahead and gaining popularity. (FYERS cited)

Why invest in ESG funds?

Khoday said, “investing in ESG funds can provide a way for investors to align their values with their investments, potentially improve financial performance, and manage risk.”

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

“This can be particularly appealing for investors who want to make a positive impact through their investments,” he added.

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

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


Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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