Kotak Mutual Fund has entered the ESG thematic fund space, with Kotak ESG Opportunities Fund offering. The new fund offer has opened on November 20 and will close on December 4. Let us find out more about the product.

ESG explained

An ESG investment focuses on how companies make money rather than how much money they make. This is based on three critical parameters.

* Environmental (E)
* Social (S)
* Governance (G)

Why Kotak ESG Fund

Kotak AMC has been at the forefront of ESG investing. It is the first Indian asset management company to sign UNPRI – United Nations’ Principles for Responsible Investment. Signing the internationally-recognised Principles for Responsible Investment allows your organisation to publicly demonstrate its commitment to including ESG factors in investment decision making and ownership.

How stocks will be picked for portfolio

Around 40-60 top stock ideas based on ESG score and Kotak AMC’s proprietary Business, Management & Valuation (BMV) approach will be selected.

If ESG is done by Kotak AMC as a whole, why this NFO

Yes, active engagement by Kotak AMC is already done with investee ESG. This is an integral part of the fund-house’s existing investment process.

But while for other Kotak equity funds ESG is part of research process, for Kotak ESG Opportunities Fund the focus on ESG parameter based filter will lead to preference to companies/stocks with higher ESG.

Also, Kotak ESG Opportunities Fund will importantly have moderate to high mid & smallcap exposure. This is different from the low to moderate exposure by funds like Kotak Standard Multicap Fund.

More fund details

Fund manager – Harsha Upadhyaya (President & CIO- Equity, Kotak AMC)

Minimum investment during NFO – Rs 5,000

Minimum SIP purchase – Rs 1000

Plans – Regular Plan and Direct Plan

Options – Growth, Dividend Payout and Dividend Re-investment

Exit load – 1% for redemptions / switch outs (including SIP/STP) within 1 year from the date of allotment of units, irrespective of the amount of investment

Fund benchmark – Nifty 100 ESG Index TRI

RupeeIQ take

There are just a handful of funds. So, one can always argue that there is not enough compelling evidence that the ESG theme is worth investing in. The performance of the ESG/Responsible investing indices can serve as an important guide. They show that in the five year period, they beat other plain-vanilla indices like BSE 500 or Nifty 50.

Historical evidence suggests that companies that prioritize ESG issues have generated better risk-adjusted returns. From an absolute returns perspective, responsible investing oriented portfolios can generate a higher return than plain-vanilla indices of largecap firms.

Though thematic funds are supposed to be high-risk, investors must understand that ESG / Responsible / Sustainable investing oriented funds are safe. We would argue that these products are quite a good choice to start off for someone looking at adding thematic funds to their portfolio.

But ESG investing is still a theme. The thing with themes is that sometimes they do well, sometimes they don’t. When a theme works, more products arrive to cash in on the theme. Themes should not form a large part of your portfolio. Allocate a small percentage to themes.

Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at [email protected].

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