{"id":503,"date":"2019-06-21T12:26:16","date_gmt":"2019-06-21T12:26:16","guid":{"rendered":"http:\/\/blog.certifiedfinancialguardian.com\/?p=503"},"modified":"2019-06-22T07:59:52","modified_gmt":"2019-06-22T07:59:52","slug":"decoding-quantum-india-esg-equity-fund-can-this-theme-gain-momentum-in-india","status":"publish","type":"post","link":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/2019\/06\/21\/decoding-quantum-india-esg-equity-fund-can-this-theme-gain-momentum-in-india\/","title":{"rendered":"Decoding Quantum India ESG Equity Fund: Can This Theme Gain Momentum In India?"},"content":{"rendered":"\n

Quantum India ESG Equity Fund is an open-ended equity scheme<\/a> investing in companies following Environment, Social and Governance (ESG) theme.<\/p>\n\n\n\n

What is an ESG fund?<\/strong><\/p>\n\n\n\n

ESG fund is an\nopen-ended thematic fund that will invest in companies that are sustainable,\nusing an approach that incorporates E<\/strong>nvironment,\nS<\/strong>ocial, and G<\/strong>overnance (ESG) factors and their impact throughout the investment\nprocess.<\/p>\n\n\n\n

Environment,\nSocial and Governance are vital facets of the larger ecosystem we live in. Sensibly\nhandling of the environment and social issues, like global warming, pollution\ncontrol is essential in the path to progress and sustainable living. Governance\nalso plays a key role, without which, everything can fall apart and progress in\nits true sense may never see the light of the day.<\/p>\n\n\n\n

Thankfully, the\nprivate sector now is recognising the importance of this larger goal. In\naddition to, taking Corporate Social Responsibility (CSR) projects, many of\nthem are even making conscious investment choices, turning sensitive to\nEnvironment, Social and Governance (ESG), which are crucial subject matters. <\/p>\n\n\n\n

For example, a company with lower carbon emission would be a better company than a polluter as it will face lower regulatory or societal risk. So, its shares would be less volatile over time and will provide better returns, if invested in it. <\/p>\n\n\n\n

A perfect way, to\nput it would be, finance without sustainability is a disastrous recipe\nfor environment and society.<\/p>\n\n\n\n

Recent Launch of ESG Fund in India <\/strong><\/p>\n\n\n\n

Due to increasing\nincongruencies in corporate governances being surfaced, following the ESG theme\nis something the fund managers are open to adopting as an investment methodology\nto offer investors potential long-term performance advantages. <\/p>\n\n\n\n

ESG funds are slowly\nbeen considered and gaining popularity among investors including FIIs who want\nto be seen to be contributing towards cutting down global warming, along with\nvalue additions to human development and without compromising on financial\nreturns. <\/p>\n\n\n\n

Depending on the\nESG score, a stock is selected to invest while creating a portfolio of such a\nscheme.  A higher score of a company\nindicates \u201ccleaner and greener business\u201d. <\/p>\n\n\n\n

ESG factors will give fund managers an insight into the quality of a company\u2019s management, culture, risk profile and other characteristics. By adding this increased level of scrutiny associated with ESG analysis is helpful in creating a portfolio that will create potential gains.<\/p>\n\n\n\n

In one of the\nstory Forbes India covered, mentions, \u201cEnvironmental\nscores are the aggregation of carbon emissions, biodiversity impact and water\nconsumption; the social dimension includes human rights, non-discrimination,\nhealth and safety; the governance factor assesses board independence, shareholder\u2019s\nrights and a company\u2019s business ethics.<\/em><\/p>\n\n\n\n

Better sustainability practices are becoming increasingly important to both companies and investors. Consequently, ESG funds, which are common globally, are starting to find a place in India.”<\/em><\/p>\n\n\n\n

Hence it is important\nfor fund managers to be ethical and sensitive towards these issues and invest\nsensibly in the long-term interest of investors. <\/p>\n\n\n\n

At the broader\nlevel, asset managers will serve a fiduciary responsibility for the well-being interest\nof investors and the community or society at large.<\/p>\n\n\n\n

Quantum Mutual Fund<\/a>, keeping sustenance parameters in mind\nlaunched Quantum India ESG Equity Fund (QIESGEF). <\/strong><\/p>\n\n\n\n

Besides, in 2014,\nIndia introduced a national level cleanliness movement- \u201cSwachh Bharat\nAbhiyan\u201d. The aim was to clean length and breadth of the country, provide\ncleaner natural resources, improve hygiene and health and contribute towards\nachieving the sustainable development goal established by the United Nations in\n2015. <\/strong><\/p>\n\n\n\n

With the launch of Quantum India ESG Equity\nFund, the fund house shows its support to the mass movement for cleanliness and\nsustainability and takes a step forward towards ensuring that investments flow\ninto greener and cleaner business.<\/p>\n\n\n\n

The focus would\nbe on businesses that will ensure sustainable management of natural and human\nresources, have a diverse organisational structure, prudent management, and follow\na socially responsible framework of business. <\/p>\n\n\n\n

But, in terms of\nrisk-return matrix, being a thematic fund, QIESGEF involves extremely high risk,\nif the portfolio is highly concentrated, and hence it is a very-high-risk high-return\ninvestment proposition.  <\/p>\n\n\n\n

[Read: <\/strong>Four Types of Mutual Fund for Aggressive Investors<\/a>]
<\/p>\n\n\n\n

However, note\nthat since the approach is focused on ESG parameters the scheme is value\nagnostic, to form a well-diversified portfolio of stocks from various sectors\nand across market capitalisation.<\/p>\n\n\n\n

Hence, it\u2019s noteworthy that given the positive characteristics of ESG investing, it can outweigh the risks in the long-term and prove to be a rewarding experience.   Thus, QIESGEF is suitable only for investors who have a high-to-very high-risk appetite and an investment horizon of at least 5 years.<\/p>\n\n\n\n

Table\n1: NFO Details<\/em><\/strong><\/p>\n\n\n\n
\n Type<\/strong>\n <\/td>\n An open-ended equity scheme\n <\/td>\n Category<\/strong>\n <\/td>\n Thematic (following Environment, Social\n and Governance (ESG) theme)\n <\/td><\/tr>
\n Investment Objective<\/strong>\n <\/td>\n  To\n achieve long-term capital appreciation by investing in a share of companies\n that meet Quantum\u2019s Environment, Social and Governance (ESG) criteria.\n <\/td><\/tr>
\n Min. Investment<\/strong>\n <\/td>\n Rs 5,00 and in multiples of Re 1 thereafter.\n <\/td>\n Face Value<\/strong>\n <\/td>\n Rs 10 per unit\n <\/td><\/tr>
\n Plans <\/strong>\n <\/td>\n \u2022 Regular
\n \u2022 Direct\n <\/td>		\n Options<\/strong>\n <\/td>\n \u2022 Growth (default option)\n <\/td><\/tr>
\n Entry Load<\/strong>\n <\/td>\n Nil\n <\/td>\n Exit Load<\/strong>\n <\/td>\n
  • 10% of units If redeemed or\n switched out on or before 365 days from the date of allotment: NIL<\/li>\n
  • Remaining 90% of units if\n redeemed or switched out on or before 365 days from the date of allotment: 1%\n applicable <\/li>\n\t
  • If redeemed or switched out\n on or after 365 days from the date of allotment: NIL<\/li>\n <\/ul>\n \n <\/td><\/tr>
\n Fund Manager<\/strong>\n <\/td>\n Mr Chirag Mehta and Ms Sneha Joshi\n <\/td>\n Benchmark Index<\/strong>\n <\/td>\n Nifty 100 ESG Total Return Index\n <\/td><\/tr>
\n Issue Opens<\/strong>\n <\/td>\n June 21, 2019\n <\/td>\n Issue Closes:<\/strong>\n <\/td>\n July 5, 2019\n <\/td><\/tr><\/tbody><\/table>\n\n\n\n

(Source: Scheme Information Document<\/a>)<\/p>\n\n\n\n

How will the scheme allocate its assets?<\/strong><\/p>\n\n\n\n

The asset allocation under the Scheme,\nunder normal circumstances, will be as follows: <\/p>\n\n\n\n

Table\n2: QIESGEF’s Asset Allocation<\/em><\/strong><\/p>\n\n\n\n
\n Instruments<\/strong>\n <\/td>\n Indicative\n Allocation (% of Total Assets)<\/strong>\n <\/td>\n Risk\n Profile<\/strong>\n <\/td><\/tr>
\n Minimum<\/strong>\n <\/td>\n Maximum<\/strong>\n <\/td>\n High\/\n Medium\/ Low<\/strong>\n <\/td><\/tr>
\n Equity & Equity Related Instruments\n of Companies following ESG Criteria\n <\/td>\n 80\n <\/td>\n 100%\n <\/td>\n High\n <\/td><\/tr>
\n Money Market Instruments and Liquid\n Schemes of Mutual Funds\n <\/td>\n 0\n <\/td>\n 20\n <\/td>\n Low \n <\/td><\/tr><\/tbody><\/table>\n\n\n\n

The\nScheme will not invest either in Repo of Corporate Debt Securities, Securitized\nDebt Instruments, Foreign Securities or Derivatives.<\/p>\n\n\n\n

In\naccordance with SEBI Circular No. CIR \/ IMD \/ DF\/11\/2010 dated August 8, 2010,\nthe aggregate asset allocation will not exceed 100% of the net assets of the\nscheme.<\/p>\n\n\n\n

The\nScheme, under normal circumstances, shall not have exposure of more than 50% of\nits net assets in stock lending. The Scheme may also not lend more than 5% of\nits overall stock lending exposure to anyone intermediary to whom securities\nwill be lent.<\/p>\n\n\n\n

(Source: Scheme\nInformation Document<\/a>)<\/p>\n\n\n\n

What will be the Investment Strategy?<\/strong><\/p>\n\n\n\n

The focus of\nQuantum India ESG Equity Fund will be on investing in businesses, which are\nensuring sustainable management of natural and human resources, diversity\nwithin the organizational structure, prudent management and socially\nresponsible framework of business.<\/p>\n\n\n\n

The investment\nstrategy determines sector weightages to reflect that of broad,\nwell-diversified indices of the Indian equity markets. Further, the strategy\naims to invest in companies within each sector that stand high on the\nEnvironmental, social and Governance (ESG) parameters. <\/p>\n\n\n\n

The investment\nstrategy of the Scheme will be to invest in a basket of stocks after intensive\nanalysis on the environmental, social and governance aspects of the company.\nThe aim is to follow a comprehensive \u2018ESG Framework\u2019 in order to develop a\ndeeper understanding into a company\u2019s management practices, sustainable\nbusinesses and risk profile, which would thereby help us in understanding the\nimpact on long-term sustainability that drives performance.<\/p>\n\n\n\n

The primary focus\nof the Scheme will be on companies based on two criteria: <\/p>\n\n\n\n

  1. First is for selecting companies under\ncoverage; and <\/li>
  2. Second is for selecting companies in the\nportfolio <\/li><\/ol>\n\n\n\n

    The\nfirst criteria is selecting companies generally trading with the liquidity of\nminimum US $ 1 million on an average over the last 12 months and second\ncriteria based on their ESG score.<\/p>\n\n\n\n

    Each security,\nwhich is filtered based on first criteria, will be scored on ESG parameters\nusing data sources such as sustainability reports (Global Reporting Initiative\n(GRI)Framework) Business Responsibility Reports (BRR) and other publicly available\ndocuments. Active weights of security within their respective sector will be\ndetermined by a composite ESG score. A higher ESG score of security within the\nsector will have higher relative weight and vice versa. <\/p>\n\n\n\n

    The selection\nprocess ensures eliminating exposure to companies that rank poorly on ESG\ncriteria completely. The sum total of the weights of securities in a sector\nwill be equal to the tracked sector weights of broad well-diversified indices.\nThe allocations focus on governance and sustainability; hence will be agnostic\nto valuations.<\/p>\n\n\n\n

    So, the investment process will consist of\u2026<\/p>\n\n\n\n