ESG/SRI FUNDS : A STUDY ON INVESTOR AWARENESS & PERCEPTION

Abstract

What parameters one should look for before investing in a fund; are there any parameters of the company one should look for before investing in a company through funds be it Index funds or mutual funds. Generally, investors look for the returns against the risk posed by the funds & the expense ratio charged by the fund manager. We are looking to study whether the investor (i.e. retail investor) is thinking beyond the risk reward equation & considering the fundamental parameters of the company before investing in the funds. SRI and ESG "screens" are ways to determine what you have in your investment portfolio. Socially responsible investing (SRI) is a steadily growing market segment. socially responsible investing is done to fund activities that have a high social utility. It involves evaluating companies on CSR issues, analysing corporate social and environmental risks, and engaging corporations to improve their CSR policies and practices. More and more investors apply socially responsible screens when building their stock portfolios. This raises the question whether these investors can increase their performance by incorporating such screens into their investment process. SRI fund managers employ several screens at the same time such as tobacco, alcohol, community, employee relations, environment, and diversity. Indian investors are not ready for SRI funds as yet since there is a feeling (even among high net worth investors) that fund managers will compromise on returns for the sake of meeting social objectives. Socially responsible investing also has tax advantage. SRI funds, currently, have $3 trillion in assets across the globe. SRI ratings are a valuable information for investors. A simple trading strategy based on this publicly available information leads to high abnormal returns. This immediately raises the question of where this extra profit stems from. Does it result from a temporary mispricing in the market or does it compensate for an additional risk factor. Over the past few years, the world has seen that the integration of ESG factors where ESG refers to Environmental, Social & Governance have a material impact on the performance of that investment. Similar trend is also witnessed in India & the funds aligned to these factors have given sustainable returns. But are these preferable funds/choice for the Investors; this is what we are looking to study through this project. We have gathered information from the sample size of 50 mainly the participants were from corporate world & other retail investors. Information was analysed through the software to study the preference for the ESG funds.