ICICI Prudential ESG Fund NFO – Should you Invest?

ICICI Prudential ESG Fund NFO – Should you investICICI Prudential ESG Fund NFO – Should you Invest?

ICICI Prudential Mutual Funds is planning to launch ESG Fund scheme which is a thematic mutual fund. ICICI Prudential ESG Fund invests in Environment, Social and Governance criteria. ESG is gaining ground with increase in total assets under socially-responsibility investment. This ESG Equity Fund from ICICI Pru MF would open for subscription on September 21, 2020. What is this ESG theme all about? Should you invest in the ICICI Prudential ESG Fund NFO? Would ESG funds create wealth in the medium to long term?.

Also Read: Should you invest in HSBC Corporate Bond Fund that can provide higher returns than Bank FDs?

What is ESG theme?

ESG represents factors viz. Environmental (such as impact of business on natural resources), Social (such as a business, having undesirable social of the scheme impact) and Governance (being the way in which the company is run). Quality companies with a competitive advantage, sustainable business model and visibility of earnings growth are the best avenues for long term wealth generation. ESG factors can complement traditional tools for evaluating and identifying quality businesses and thus improve the overall understanding of the company.

Typically, it is seen that the companies that have strong ESG metrics are companies that are well governed and treat their responsibilities to the environment and society seriously and as a result are likely to avoid negative external shocks that can impact their business models.

ICICI Prudential ESG Fund NFO – Issue Details

This is an open-ended mutual fund. Here are the NFO issue details.

Scheme Opens 21-Sep-20
Scheme Closes 05-Oct-20
Scheme Plans Direct and  Regular
Growth and Dividend
Minimum investment (Lumpsump) Rs 5,000
Minimum investment (SIP) Rs 100 / 6 months
NAV of the fund Rs 10 during NFO period
Entry Load Nil
Exit Load 1% if exited within 1 year
Risk High Risk
Max Total expense Ratio (TER) 2.25%
Benchmark Nifty 100 ESG TRI

Download ICICI Prudential ESG Fund NFO SID

Who is eligible to invest in this mutual fund scheme?

The following can invest in this scheme.

1) Indian resident adult individuals, either singly or jointly.

2) Minors through Parents/Lawful Guardian.

3) Hindu Undivided Family (HUF) through its Karta.

4) Partnership Firms in the name of any one of the partners.

5) Proprietorship in the name of the sole proprietor.

6) Companies, Body Corporate, Societies, Association of Persons, Body of Individuals, Clubs and Public Sector Undertakings registered in India if authorized and permitted to invest under applicable laws and regulations.

7) Banks

8) Non-Resident Indians (NRIs) / Persons of Indian Origin (PIO) on full repatriation basis or on non-repatriation basis;

Complete list of eligible participants who can invest can be checked in the NFO prospectus.

Who is the Fund Manager of ICICI Prudential ESG Fund NFO?

The Fund Manager is Mr. Mrinal Singh and Ms. Priyanka Khandelwal.

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What is the benchmark for this scheme?

The benchmark for this scheme is NIFTY 100 ESG TRI.

ICICI Prudential ESG Fund NFO – Investment Objectives

The investment objective of this fund is to generate long-term capital appreciation by investing in a diversified basket of companies identified based on the Environmental, Social and Governance (ESG) criteria.

What is the allocation pattern in this mutual fund scheme?

This fund investment pattern is as follows:

1) It invests 80% to 100% in Equity and Equity related instruments of companies identified based on the Environmental, Social and Governance (ESG) criteria. The risk profile in this segment is high.

2) It invests 0% to 20% in other equity and equity related instruments. The risk profile in this segment is high.

3) It invests 0% to 20% in debt and money market instruments. The risk profile in this segment is low to medium.

4) It invests 0% to 10% in units of REITs and InvITs. The risk profile in this segment is medium to high.

5) It invests 0% to 10% in preference shares. The risk profile in this segment is medium to high.

Can NRI invest in this MF scheme?

Yes, they can invest in this scheme. They can invest on repatriation or non repatriation basis. However, Resident of Canada, US persons and OCBs cannot invest in this scheme.

Why should you invest in ICICI Prudential ESG Fund NFO?

Here are few reasons to invest in such schemes.

1) It is unique mutual fund scheme that invests in ESG Criteria.

2) As indicated in our earlier articles, according to a report by Bloomberg Intelligence earlier, ESG and sustainability-focussed ETFs should continue to grow based on niche themes such as low-carbon, climate and gender. While developed market ESG indices outperformed in 2018, the MSCI Emerging market ESG leaders trailed but still outperformed on a long-term basis. These indices need to keep up their out-performance to keep the investments coming, the report said. Now this concept is spreading wide in India.

3) There has been strong research evidence of ESG investing delivering superior returns since companies with strong sustainability scores demonstrate better operational performance and are less risky.

Major risk factors you should consider before investing in such funds

One should consider some of these risk factors / negative factors before investing.

1) This scheme invests based on ESG criteria where such investment strategy is relatively new in India. A mutual fund may or may not gain from such new strategies in the short term.

2) Companies that have good ESG criteria could be available at high share prices. This fund might invest in such stocks at a high price for which the real worth could be at a low.

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3) It invests upto 20% in debt instruments where there is interest rate risk and risk of downgrading of corporate credit rating.

4) Investors should not assume any guaranteed returns from ESG MF schemes.

5) Since it is a new mutual fund scheme, there is no past performance, hence we would know how the fund would perform in the future.

6) Investors should read the NFO prospectus before investing in such mutual fund schemes.

How is the Performance of ESG Mutual Funds in India?

Currently there are few funds in this ESG segment. Let us look at the performance of these existing ESG funds. We have recommended Axis ESG fund when it came for NFO in Feb-2020 and it gave 9% returns since inception and 18% returns in the last 6 months.

Fund Name 6 month Annualised Returns
1 Year 3 Year 5 Year
Quantum India ESG Equity Fund 28.7% 11.6%
SBI Magnum Equity ESG Fund 20.7% 5.5% 5.1% 8.3%
Axis ESG Equity Fund 17.8%

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Should you invest in the ICICI Prudential ESG Fund NFO?

India inc has seen several scams in the last few years. There are many corporates where the credit rating has fallen within a span of a few months (e.g. DHFL). These are some of the major concerns, investors are worried about now. Corporates with good corporate governance tend to perform well in the medium to long term. Indian investors are now moving towards focussing on investing in companies that meets ESG criteria which could be a relatively safer bet. Such schemes are classified as thematic funds and are high risk as they focus on stocks that meets specific criteria. If you are a high risk investor, you can invest in this scheme. Alternatively, if you do not want to test with such new fund, you can invest in some of the existing ESG mutual funds that had already proven its performance. Moderate to low risk investors should stay away from such funds.

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Suresh KP

9 comments

  • IRSHAD

    Dear suresh sir
    Pl review abt Max Life Smart Term insurance Plan. It is not found in this blog whereas I got an subscribef email from u regarding the above review.

  • G. Vishal

    Hi Suresh,

    Is it always good to start with SIP or paying lumpsum amount on new fund – ICICI Prudential ESG? As we see the NAV for the new fund is INR 10/-. If I invest 10,000/- monthly how much returns I can expect after 3 years and 5 years of period. Please provide your thoughts? Also, let me know any good SIP funds which gives an average 10-15% of returns over the period of 3 years and above. Thank you!

    Thanks,
    Vishal

  • radhaaariv

    This blog post is exactly what i was actualy looking for. I read your blog and i found it very interesting and useful blog for me. I hope you will post more like this, i am very thankful to you for these type of post. Thanks for sharing. It helps me a lot!

  • Rajiv Gupta

    Dear Suresh, I do admire your insightful articles…and now want you share your view on the security aspect of NPS ( tier 2 ) investment schemes .
    To elaborate, I have put most of my retirement money in 100 percent Government security in Tier 2 of NPS…and I notice a handsome return of more than 10 percent on annual basis since last two years.
    My concern however is how safe is the principal amount invested in the scenario of interest rates moving upward in future?
    I also noticed the NAV of that scene last year was about Rs.25 …and now it is about Rs. 22 ( LIC , tier 2 in Government security thru NPS) …and still it shows an appreciation of the money invested.
    Can you solve this riddle and elucidate on this pls ?
    Thanks in advance .
    Rajiv Gupta
    New Delhi

    • Hello Rajiv, Investment on government bonds would fluctuate due to change in bond prices based on interest rate movements. If interest rate rises, bond prices would fall and vice versa. You might be seeing such fluctuations in the Government bonds in your NPS Tier-2 account. Whenever you see fall in interest rates, your bond values should jump again back. This is normal scenario. Yes these fluctuations would be little irritating for us. However, the principal amount in govt securities is safe (except for fluctuations in bond prices due to interest rate movements).

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