Sustainable funds in India attract USD 500 mn during COVID-19 selloff

PTI, May 17, 2020, 10:51 AM IST

New Delhi: Sustainable funds in India have shown resilience during the coronavirus-triggered market selloff and attracted more than USD 500 million (over Rs 3,700 crore) in January-March largely due to growing investor interest in environmental, social and governance issues, says a report.

Sustainable or ESG (environmental, social, and governance) funds in Asia (excluding Japan) witnessed an inflow of over USD 900 million during the quarter under review, according to the report by Morningstar.

Such funds offer exposure to themes such as renewable energy, low carbon, green transport, and environmental protection.

“Indian funds experienced record inflows of USD 507 million in first-quarter 2020, supported by Axis ESG Equity, which received USD 239 million in inflows,” the report noted.

The inflows in the first quarter of the calendar year 2020 speak of the stickiness of ESG investments. Investors in sustainable funds are typically driven by their values, invest for the long term, and seem to be more willing to ride out periods of bad performance, it added.

During the quarter, Axis ESG Equity made its debut in India with USD 240 million seed capital and the fund assets under management (AUM) was pegged at Rs 1,554 crore.

Apart from Axis MF, Quantum MF and SBI MF to have ESG funds. At the end of the March quarter, AUM of SBI Magnum Equity ESG stood at Rs 2,039 crore and that of Quantum India ESG Equity was over Rs 12 crore.

Besides ESG funds, experts believe index funds and exchange-traded funds (ETFs) are the other themes that are gaining traction among the country’s mutual fund companies.

During January-March, draft documents for as many as 17 new schemes were filed with markets regulator Sebi and a large chunk of these requests for new fund offers (NFOs) were for index funds and ETFs.

Bucking the overall trend, the report said sustainable fund assets in Asia were up 21 percent to USD 7.7 billion, bolstered by new fund launches.

Globally, such funds witnessed an inflow of USD 45.6 billion during the quarter under review. In comparison, a withdrawal of USD 385 billion was seen in the overall fund universe.

The assets in global sustainable funds dropped 12 percent to USD 837 billion at the end of the first quarter of 2020, from a record high of USD 960 billion at the close of 2019.

“However, assets in the global fund universe took a greater hit, declining by 18 percent. Europe continued to dominate the ESG space, housing 76 percent of the global sustainable offerings and 81 percent of the assets, but investor interest in other regions is growing,” it said.

European sustainable funds attracted inflows of USD 33 billion in the first quarter of 2020. This contrasts with the USD 163 billion in outflows suffered by the overall European fund universe.