Sustainable mutual funds see outflows in FY22 as new launches dry up

NEW DELHI: Sustainable mutual funds or schemes based on the theme of environment, social and corporate governance (ESG) saw outflows of ₹315 crore during financial year 2021-22 compared with inflows of ₹4,884 crore in the previous year, according to Morningstar India.

Driven by increased investor interest in ESG issues, sustainable funds have gained a lot of traction in India over the last one year.

Globally, flows into sustainable funds continued at a rapid pace, with assets in ESG funds exceeding $2.7 trillion as of December 2021.

“Investors are yet to fully warm up to the concept of sustainable investing. We have observed that most flows into sustainable funds so far have come in during the new fund offer period, FY21 witnessed significant inflows as there were several ESG fund launches,” said Kaustubh Belapurkar, director– manager research, Morningstar India.

There were three ESG-based domestic schemes available at the start of the fiscal 2021 which rose to 10 by the end of the year. However, this count remained the same at the FY22, meaning zero new fund offer for ESG schemes.

However, assets under management (AUM) of these schemes have jumped over three times over the past two financial years to ₹11,812 crore at the end of March 2022.

SBI Magnum Equity ESG Fund is the biggest and oldest sustainable investing fund in India with an AUM of ₹4,583 crore as of March end.

In terms of performance, this category has delivered an average return of 21.91% on a one-year basis and 15.14% on a three-year basis, which is line with Sensex’s returns over the same period.

“It’s still early days in India from an ESG perspective, but with the launch of ESG funds in the last few years, there are investable options available for investors. Acknowledging the growing interest around the globe for sustainable investing, the regulator is also looking to frame regulations around sustainable investing and disclosures,” said Belapurkar.