SEBI’s move to allow 6 new ESG fund categories may confuse investors

| Leave a Comment | Personal Finance

The Securities and Exchange Board of India (SEBI) recently allowed asset management companies (AMCs) to launch up to six different types of funds under the environmental, social, and governance (ESG) category of mutual funds. This is in line with the regulator’s efforts to promote green finance and channel more investments towards ESG-compliant companies.

However, some experts believe that this move may confuse investors, who are already overwhelmed with the multitude of fund categories and schemes that are available.

The six new ESG sub-categories are:

  • ESG-exclusion: Funds in this category will exclude companies that are involved in activities that are considered harmful to the environment or society, such as tobacco, coal, and gambling.
  • ESG-integration: Funds in this category will integrate ESG factors into their investment decisions, such as by considering a company’s environmental impact or its employee relations when making investment decisions.
  • ESG-best-in-class & positive screening: Funds in this category will invest in companies that are considered to be the best in their industry in terms of ESG performance, or that have positive ESG practices.
  • ESG-impact investing: Funds in this category will invest in companies that are working to solve environmental or social problems.
  • ESG-sustainable objectives: Funds in this category will invest in companies that are committed to achieving specific ESG goals, such as reducing their carbon emissions or improving their water usage.
  • ESG-transition or transition-related: Funds in this category will invest in companies that are transitioning to a more sustainable business model.

While the intention behind this move is to give investors more options to invest in ESG-compliant companies, it is important to note that these new sub-categories may limit the number of companies that are available for investment in each bucket. This could make it difficult for investors to find funds that match their investment goals and risk appetite.

In addition, the new ESG sub-categories are still relatively new, and there is limited data on their performance. This means that investors may find it difficult to assess the risks and rewards of investing in these funds.

Overall, it is important for investors to do their research before investing in any ESG fund, regardless of the sub-category. They should carefully consider their investment goals, risk appetite, and time horizon, and they should also understand the fees and expenses associated with the fund.

It is also worth noting that there is no guarantee that ESG funds will outperform other types of funds in the long run. In fact, some studies have shown that there is no significant difference in the performance of ESG funds and traditional funds.

Therefore, investors should not invest in ESG funds solely for the sake of doing good. They should only invest in these funds if they believe that they can generate a reasonable return on their investment.


Related News

  • 18 Sep

    CBDT Amends Valuation Rules for Accommodation Perquisite, Effective September 1, 2023

    The CBDT has amended the valuation rules for accommodation perquisite, effective September 1, 2023. The key changes are: Lower perquisite rates and revised city categorization. Introduction of Cost Inflation Index (CII) to cap the perquisite valuation for subsequent years. Change in plinth area and definition of remote work: Temporary accommodation provided to employees at select sites will not be taxable as a perquisite if it meets certain conditions. The amendments are expected to benefit employees, especially those working in remote areas.

  • 14 Sep

    Roshi Jain steps into Prashant Jain’s shoes at HDFC AMC

    Roshi Jain has taken over the reins of HDFC Flexi Cap Fund, one of the largest equity-oriented schemes in India. She has made some subtle changes to the portfolio, such as reducing exposure to the energy and consumer staples sector and increasing allocations to the IT and pharmaceutical sectors. She is confident that she can continue the success of the fund under her leadership.

  • 13 Sep

    Nifty 50 hits 20,000: Underweight stocks that delivered big gains

    The Nifty 50 index crossed 20,000 on Sep 11, 2023. Half of the stocks in the index doubled in 3 years. Stocks with significant weight grew notably, but some underweight stocks gained significantly too. Top 10 underweight stocks with highest returns: Tata Motors (+340%), Apollo (+216%), JSW Steel (+186%), Hindalco (+171%), NTPC (+170%), Grasim (+158%), Adani Ports (+157%), ONGC (+150%), IndusInd Bank (+138%). Past performance is not a guarantee of future results.

  • 12 Sep

    Retail participation in the stock market is decreasing, but overall market traded volume is increasing.

    Retail participation in Indian stock market decreases, but overall traded volume increases. Investors should focus on long-term investing and do their research. Here are the key points from the article: Retail participation in cash/spot segment decreases from 45% to 36.5%. This is likely due to COVID-19, market volatility, and proprietary trading. Overall market traded volume increases. Investors should focus on long-term investing and do their research.

  • 11 Sep

    Sovereign Gold Bond Scheme 2023-2024 Series II: All you need to know

    The Reserve Bank of India (RBI) has announced the launch of the Sovereign Gold Bond Scheme 2023-2024 Series II. The price of the bond has been fixed at Rs 5,923 per gram of gold. Investors making payment through digital means will get an additional discount of Rs 50 per gram. The bonds are open to all investors and offer an interest rate of 2.5% per annum. The capital gains are tax-free if the bonds are held till maturity.

Leave a Reply

Your email address will not be published. Required fields are marked *