Axis Mutual Fund today announced the launch of its Environment, Social and Governance (ESG) Fund, joining the ranks of mutual funds cottoning on to this trend. The Axis move was preceded by two other major launches in recent years. SBI Mutual Fund reclassified its equity fund as an ESG Fund during the industry wide reclassification exercise of 2018.
Quantum Mutual Fund launched its Equity ESG Fund in July 2019. However in a departure from its peers, Axis ESG Fund will invest up to 30% of its corpus in foreign stocks. Its partial allocation to foreign stocks places the fund in a unique basket of hybrid India-international combo funds which benefit from equity taxation while participating in foreign markets.
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The fund will be managed by Jinesh Gopani who also runs Axis Long Term Equity Fund, a large ELSS fund from the Axis stable. The New Fund Offer (NFO) for the fund will run from 22 January to 5 February 2020. As an open ended fund, it will be available for subscription thereafter on an ongoing basis.
The AMC will follow a three-stage process while selecting stocks for the fund. First, it will exclude problematic sectors like tobacco and alcohol. Second, it will screen out stocks which attract ESG red flags. Third, it will carry out a qualitative ESG analysis of each company, complementing its fundamental research on the company. Schroeders, a global asset manager, will advise on the foreign portion of the fund. ESG factors will include issues such as climate change, natural resource use, product safety, business ethics and transparency.
Dismissing concerns about ESG fund having a high level of stocks in common with regular diversified funds of Axis AMC, Chandresh Nigam, CEO, Axis Mutual Fund, told reporters that some overlap is natural since ESG compliant companies also tend to be rewarded by the market. Although there is some commonality, you will find differences in stocks once you go down the list of holdings in the portfolio, he added.
The foreign stocks will also bring in an element of portfolio differentiation. “This fund is for those who believe in sustainable and responsible investing," he said. The fund is benchmarked to the Nifty ESG index but it will deploy a proprietary formula to identify ESG stocks, said Ashwin Patni, Head – Products and Alternatives, Axis AMC. “We will not blindly take ESG scores from some third party. It will not be box ticking exercise," he added. Axis ESG Fund will be a multicap fund, permitted to invest across market capitalization.
However financial advisors remain skeptical. “In India, compliance with ESG parameters is mostly on paper. In reality, companies do not conform to such norms. ESG is simply not practical," said Viral Bhatt, a Mumbai-based financial advisor. Those investors who do not share this skepticism should wait and evaluate the fund and its portfolio before investing. A good track record is an essential component of fund selection.