Axis ESG Equity Fund NFO Review
Axis Mutual Fund house is launching ESG Equity Mutual Fund scheme which is a thematic mutual fund. The Axis ESG Equity Fund invests in Environment, Social and Governance criteria. ESG is gaining ground with 26% of total assets under socially-responsible investment. This ESG Equity Fund from Axis MF would open for subscription from 22nd January, 2020. How are the existing ESG Mutual Fund schemes performing now? Should you invest in the Axis ESG Equity Fund?
Also Read: Top 10 Largecap Mutual Funds to invest in 2020
Issue Details of Axis ESG Equity Fund NFO
This is an open-ended mutual fund equity scheme.
This scheme would open for subscription on 22nd January, 2020.
This scheme would close for subscription on 5th February, 2020.
Since this is an open ended scheme, it would again open for subscription after allotment of MF units after the NFO period after 5 working days.
This scheme is available in both regular and direct plans.
This plan offers both growth option and dividend option.
This scheme is available for lump sum and SIP investment.
Minimum investment is Rs 5,000 and in multiples of Rs 1 there-off for lump sum investments.
Minimum investment is Rs 500 per month for monthly SIP and for a tenure of 6 months.
The NAV of the NFO is Rs 10 per unit now during initial subscription.
There is no entry load to invest in this mutual fund scheme.
If one wants to exit before 1 year from the date of investment, there is a 1% exit load on 90% of the investment value.
This scheme is classified as HIGH risk scheme.
Scheme total expense ratio (TER) is estimated at a maximum of 2.25% of the total assets on any day.
Axis ESG Equity Fund NFO details can be downloaded here on SEBI website
Who is eligible to invest in this new mutual fund scheme?
The following is eligible to invest in this new fund.
1) Resident individuals, either singly or jointly.
2) Minors through Parents/ Legal 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
Complete list of eligible participants who can invest can be checked in prospectus of this new fund offer.
Who is the Fund Manager of Axis ESG Equity Fund NFO NFO?
The Fund Manager is Mr. Jinesh Gopani and Mr. Hitesh Das (for Foreign Securities).
What is the benchmark for this scheme?
The benchmark for this scheme is NIFTY 100 ESG TRI.
What is the investment objective and strategy of this Axis ESG Equity Fund NFO?
The fund objective is to generate long term capital appreciation by investing in a diversified portfolio of companies demonstrating sustainable practices across Environmental,SocialandGovernance (ESG) parameters. However, there can be no assurance that the investment objective of the Scheme will be achieved.
ESG represent 
s 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 of 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.
The investment strategy of the Scheme will be to invest in a basket of securities based on combining existing traditional, fundamental, bottom-up financial analysis along with a rigorous analysis of the environmental, social and governance aspects of the company. The ESG analysis will be based on a comprehensive ESG framework adopted from some of the global best practices. The ESG process will be executed at various levels.
Sector level screening: The scheme will exclude sectors/themes that are deemed harmful from a societal perspective. MF will avoid investment in companies operating in those industries and maintain that exclusion on an ongoing basis. For example, I will not invest in companies involved in Cluster Munitions, Antipersonnel Mines, and Chemical and Biological Weapons. It will not hold any security that is involved in the production, stockpiling, transfer and use of these weapons.
Stock level screening: Apart from the sector exclusion list, it will not invest in stocks which throw up ESG red flags as a part of its review, even if the company is from a sector that is not a part of the exclusion list.
Portfolio Construction: It believes that evaluating a company from an ESG perspective requires a detailed qualitative approach that should complement its existing fundamental based investment process workings rather than a simplistic standalone scoring based inclusion/exclusion matrix for individual stocks. They intend to be active owners of the companies in which they invest and to reflect environmental, social and governance (ESG) value drivers within its investment process.
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 with favorable Environmental, Social and Governance (ESG) criteria. The risk profile in this segment is medium to high.
2) It invests 0% to 20% in debt and money market instruments. The risk profile in this segment is low to medium.
3) It invests 0% to 10% in units of REITs and InvITs. 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 Axis ESG Equity Fund NFO?
1) It is unique mutual fund scheme that invests in ESG Criteria.
2) According to a report by Bloomberg Intelligence some time back, 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.
2) Stocks that have good ESG criteria could be available at high stock price. This fund might invest in such stocks at a high price for which the real value could be very low.
3) Investors should not assume any guaranteed returns from ESG MF schemes.
4) 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.
5) It invests upto 20% in debt instruments where there is interest rate risk and risk of downgrading of corporate credit rating.
You may like: 10 Best Debt Mutual Funds to invest in 2020
How is the Performance of ESG Mutual Funds in India?
Currently there are two funds in this ESG category. Let us look at the performance.
1) SBI Magnum Equity ESG Fund: This fund has been existing for several years and good example of how ESG fund might have performed. Here is the performance of the fund.
i) 10 years – 11% annualized returns
ii) 7 years – 13% annualized returns
iii) 5 years – 10% annualized returns
iv) 3 years – 13.5% annualized returns
v) 1 year – 18% returns
2) Quantum India ESG Equity Fund: This fund invests based on ESG investment objectives, however came only in Jun-2019. It has a short term history of just 6 months, however, gave 9% returns during this period till now.
Should you invest in the Axis ESG Equity Fund?
Scams and downgrading of credit ratings of the corporates in India are some of the major concerns investors are worried about. Good corporate governance companies 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 safe bet. If you are a high risk investor and want to test a new ESG mutual fund scheme, you can invest in this scheme. Alternatively, you can invest in existing ESG mutual funds that are already proving its performance. Moderate to low risk investors should stay away from such high risk mutual fund schemes.
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Suresh KP
Axis ESG Equity Fund NFO Review
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My name is Mohanan, I would like to request your suggestion on mutual fund selection. I am 48 years old and wish to take moderate risk and I would like to invest 40 lac for below purposes. my investment horizon is 7 years.
20 lac – I wish to invest for my monthly income ( I will keep invested this at least 5 years) and I am expecting at least 8% return per year and same time dont like to see much volatility/loss in capital corpus.
20 lc- I wish to invest to create wealth and will need this corpus back only after 5 to 7 years.
Kindly advise at least 4 funds for each purposes.
Thank you.
Mohanan A
Hi Suresh,
Thanks for detail report. I have few queries related to this NFO and in general.
Is there a difference if I subscribe to this NFO on first day of NFO period or on last day of same.
Will the NAV on listing day be 10 or it can open with variance depending on market condition (including budget)
Also got update on this NFO that fund manager will invest 30% of corpus in foreign markets. Can this have any impact on the risk factor.
Hello Sumit Here are the responses
1) Nil
2) Opening day it would be Rs 10 only as it just started investing. Lateron based on the underlying assets it can change
3) Yes it invest upto 35% in foreign equity in lieu of largecap/midcap segment. However, there is no clarity which foreign equity it would invest (US/China/ or bluechip stocks or index stocks etc.,), hence it is difficult to guess on this.
you missed the point that this fund will invest upto 30% in international equity funds too. Considering this aspect it can be a good bet to get in.
Hello Saurav, Yes the prospectus say that in case of largecap/smallcap equity, it can also invest in foreign equity to the extent of 35%.