Mutual Funds

Axis ESG Equity Fund NFO: Nascent category, high risk

Parvatha Vardhini C | Updated on January 25, 2020

The fund will suit investors who have an investment horizon of at least 5 years

Axis Mutual Fund’s new fund offer (NFO) — Axis ESG Equity Fund — is open for subscription until February 5. Being an open-ended fund, the scheme will also reopen for ongoing purchase, shortly after the NFO closes.

Investment strategy

The fund will invest in companies that are environmentally (E) and socially (S) conscious, as well as governed (G) ethically. Sectors and companies will be ranked on ESG parameters according to a pre-set criteria, and the companies with high ESG scores will be considered.

The fund will be benchmarked against the Nifty100 ESG TRI. Apart from Indian equities, it will also invest up to 30 per cent in global ESG companies. Sectors such as consumer, consumer discretionary, IT, e-commerce, healthcare and financials will play a larger role in the portfolio, while the scheme will avoid stocks in segments such as alcohol, tobacco and gambling, as these are not in sync with ESG principles.

The foreign investments will be advised by Axis MF’sjoint venture partner Schroder, a global investment manager. Schroder runs a Global Sustainable Growth Fund focussing on ESG firms. As of end- December 2019, the fund held about one-third of its assets in the US, followed by Europe excluding UK (29 per cent), and emerging markets (14 per cent). Its top holdings include Alphabet, Adobe and AIA Group.

Axis ESG Equity will be managed by Jinesh Gopani, Head of Equities at Axis AMC. The foreign investment portion alone will be managed by Hitesh Das.

Since Axis ESG Equity will scout for suitable candidates across market capitalisations, it will have a multi-cap orientation. About 25-28 Indian stocks will form part of the holdings. The scheme will likely follow a buy-and-hold strategy, and will suit investors who have an investment horizon of at least five to seven years, according to the fund manager.

The MSCI India ESG TRI has returned 14.5 per cent, 16.7 per cent, and 9.9 per cent over the last one, three and five years, respectively. This is superior to the BSE 500 TRI by 1.5-4 percentage points over these time-frames.

However, while companies with prospects for sustainable growth make for good long-term investment, ESG investing is still a nascent category in India. Currently, only two ESG funds exist and they, too, don’t have a long track record. The erstwhile SBI Magnum Equity was re-categorised as an ESG fund in May 2018, following SEBI’s new categorisation norms for mutual funds.

Though it has outperformed its benchmark — the Nifty100 ESG TRI — by 2.25 percentage points in the last year, its performance over the long term needs to be seen. Quantum India ESG Equity Fund was launched only in July 2019.

Global exposure

What differentiates the Axis ESG fund is its international exposure. Considering the higher level of ESG consciousness in developed markets, this exposure could help. International investing also brings with it the benefits of diversification, as global markets need not move in tandem with the India market. Depreciation of the rupee against stronger currencies such as the dollar will also help boost returns.

That said, thematic funds have a higher risk than diversified equity funds. Hence, it will only suit investors with a high appetite for risk, as part of their satellite portfolio.

Published on January 25, 2020

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