India’s anti-smokers, teetotallers and environmentalists can now put their money where their mouth and heart have been.
ABN Amro mutual fund, which manages Rs5,500 crore of assets, is launching India’s only socially responsible fund, called Sustainable Development Fund, on 5 March.
It will be a closed-end fund, which means that investors will have to lock up assets for a certain period of time. But company offcials declined to provide specifics ahead of the launch. People familiar with the fund said that Crisil, the credit rating agency, is going to advise the ABN Amro on stock selection.
Socially responsible funds are typically driven by specific investment principles that channel their funds into companies that follow certain ethical and socially responsible principles, or they invest only businesses that promote ethical behaviours.
So typically these funds abstain from investing in tobacco and liquor companies, or companies whose products could cause environmental damage or pollution. Many of these funds can also carry a mandate to invest in companies that works towards sustainable development or in companies that follow strong corporate governance rules. Globally, socially responsible funds have been around for decades though they have gained popularity in recent years.
ABN’s effort is not for the first time that Indian managers are trying their hand at such funds. In 2002, JM Mutual Fund had attempted to launch JM Ethical Fund but it didn’t find takers.
ABN Amro says it is the leader in socially responsible funds in Sweden and Brazil and has such funds in countries including France, Germany, the Netherlands and the UK.
Even within such funds, ABN Amro’s offerings vary from country to country. For instance in Brazil, ABN Amro Ethical FIA invests in stocks from companies recognised for good practices in social, environmental and corporate governance.
Dhirendra Kumar, CEO of Value Research, a fund tracking house, says he is not too excited, simply because it comes from a fund house that has a track record of below average funds in terms of their returns to investors.
According to the Social Investment Forum, a non-profit US organization that promotes socially responsible investing, the total assets of such funds in 2005 were around $2.29 trillion (Rs100.76 lakh crore), having increased by 258% in the previous 10 years. While they are attracting a lot of investors, the performance of such funds is not inspiring. PAX World Growth Fund, a pioneer in this area, has had an average 7% return over the past five years.