Kotak ESG Opportunities Fund NFO Issue details and Review
There are flood of new mutual fund schemes focusing ESG theme in the last couple of months. Kotak MF is planning to launch ESG Opportunities fund now that would open for subscription on 20th November, 2020. Kotak ESG Opportunities Fund invests based on Environmental, Social and Governance criteria. ESG is gaining ground with increase in total assets under social-responsibility investment. Should you invest in the Kotak ESG Opportunities Fund NFO? Would ESG funds create wealth in the medium to long term?
What is ESG theme?
You can skip this section if you are already familiar about 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.
Kotak ESG Opportunities Fund NFO – Issue Details
This is an open-ended mutual fund. Here are the NFO issue details.
Kotak ESG Opportunities Fund NFO – Investment Objectives
The scheme shall seek to generate capital appreciation by investing in a diversified portfolio of companies that follow Environmental, Social and Governance parameters.
However, there can be no assurance that the investment objective of the scheme will be achieved.
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What is the allocation pattern in this mutual fund scheme?
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 Kotak ESG Opportunities Fund NFO?
Here are a few reasons to invest in such schemes.
1) It is a unique mutual fund scheme that invests in ESG Criteria.
2) As indicated in our earlier articles, ESG investments are expected to 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. 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 ESG criteria is new in India. A mutual fund may or may not gain from such new strategies in the short term.
2) Stocks that meet ESG criteria might be expensive. In such case the fund might pay higher share prices, but in reality the real worth could be low.
3) It invests up to 20% in debt instruments where there are interest rate risks and default risks. It also invests up to 10% in InvITS and REITs, which are high risk.
4) It invests in foreign securities and ADRs where there is country specific risks and foreign exchange currency risks.
5) Investors should read the NFO prospectus for complete risk factors.
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.
Should you invest in Kotak ESG Opportunities Fund NFO?
ESG is wide spreading in India now. Investors are now focussing on investing in companies that meets ESG criteria which could be a relatively safer bet. If you are a high risk investor, you can invest in such schemes. If you do not want to test new funds, you can invest in some of the existing ESG mutual funds that had already proven its performance. If you are moderate to low risk investors, you should stay away from such funds as such MFs invests based on ESG theme which is specific to a set of companies.
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