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Environmentally conscious investors in India can now choose from multiple products. Many of these products, such as ESG funds, have historically given higher returns than conventional alternatives. Mint looks at the green investment products in India.

What are green fixed deposits (FDs)?

HDFC Ltd, the non-bank lender associated with the HDFC Group, recently unveiled ‘Green and Sustainable Deposits’. HDFC said these FDs will “help enhance its participation in projects directly supporting UN’s Sustainable Development Goals and empower depositors to opt for financial products that have a positive impact on the environment and the society at large". The FDs carry lower interest rates than HDFC’s regular deposits. For instance, the rate is 6.10% for 33 months compared to 6.20% for regular deposits up to 2 crore. Other large banks and non-banks may offer similar products in the future.

Where do ESG funds invest?

Environmental, social and governance (ESG) funds seek out companies that meet certain specified ESG standards. For instance, companies with a high carbon footprint or engaged in the production of pollutants may be avoided. ESG investors get a bundled package—these are not ‘green’ funds in isolation, but must also meet environmental and governance standards. However, there is no uniform definition of ESG and different index providers and fund houses use their own criteria. The number of ESG funds has grown rapidly in the past two-three years and investors grew more ESG-conscious.

Green investing
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Green investing

Are there any tax benefits to green investing?

Unfortunately, no. Green FDs are taxed at the same rate as regular FDs. ESG funds are subject to the same tax regime as equity mutual funds. This amounts to 15% short-term capital gains tax and 10% long-term capital gains tax. However, investors in these funds can indirectly benefit from subsidies and concessions given to companies in which they invest.

Unfortunately, no. Green FDs are taxed at the same rate as regular FDs. ESG funds are subject to the same tax regime as equity mutual funds. This amounts to 15% short-term capital gains tax and 10% long-term capital gains tax. However, investors in these funds can indirectly benefit from subsidies and concessions given to companies in which they invest.

Is customized green portfolio an option?

Yes, but you need to approach a Sebi-registered investment adviser (RIA) to design such a portfolio. An RIA can sit with you and provide customized advice on the environmental impact of your portfolio companies. A second option is to buy an off-the-shelf environment-themed portfolio from a tech platform for advisory services like Smallcase or Wealthdesk. A third option is to subscribe to a green-themed portfolio management service (PMS). PMS products have a minimum ticket size of 50 lakh.

Yes, but you need to approach a Sebi-registered investment adviser (RIA) to design such a portfolio. An RIA can sit with you and provide customized advice on the environmental impact of your portfolio companies. A second option is to buy an off-the-shelf environment-themed portfolio from a tech platform for advisory services like Smallcase or Wealthdesk. A third option is to subscribe to a green-themed portfolio management service (PMS). PMS products have a minimum ticket size of 50 lakh.

Does green investing enhance returns?

Conventionally, you might think of green investing as a ‘sacrifice’. Screening out profitable companies in sectors such as coal or oil and gas can eat into returns. However, the market has started rewarding green and renewable energy companies based on their business prospects in a big way, particularly in the US. Electric vehicle makers such as Tesla Inc. command high valuations. The performance of ESG funds in India also shows such funds are beating diversified indices.

 

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