Investing in sustainable mutual funds in India
Indian investors are increasingly drawn to sustainable mutual funds as they seek to align their investment decisions with environmental, social, and governance (ESG) considerations. These funds invest in companies that focus on sustainability along with profitability, allowing individuals to make a positive impact on the world while also pursuing financial gains.
Understanding sustainable mutual funds
Sustainable mutual funds pick stocks or bonds of companies that pass certain ESG tests. That is, they invest in companies that are responsible for the environment they operate in, have good social relationships and have a good governance structure. In India, both awareness and accessibility of such funds are growing as investors are beginning to understand the long-term advantages of sustainable investing.
How to choose the right fund
Choosing a sustainable mutual fund involves more than just looking at financial performance. Investors need to dig into the fund's ESG analysis process and understand how it incorporates sustainability into its investment decisions. Also, knowing what sectors and companies the fund invests in will give you a better idea of its commitment to sustainability. Lastly, comparing expense ratios is important, as higher expenses can eat into your overall returns.
The role of SIPs in sustainable investing
Systemic Investment Plans provide a disciplined way to invest in green mutual funds. By committing a fixed sum every month or so, you take advantage of rupee cost averaging. This way, you can mitigate the effects of market fluctuations on your investments. SIPs allow you to begin investing with as low as Rs 500, which means going green is within reach for many of us.
Monitoring your investments
The secret to successful sustainable investing is to keep an eye on your investments. This means not only monitoring financial performance but also ensuring that the funds you have selected continue to align with ESG principles over time. A shift in fund management or strategy can impact its sustainability focus, hence it is crucial for investors to remain proactive and make informed decisions about their portfolio.
Tax implications and benefits
Green mutual funds in India come with certain tax liabilities. Equity-oriented funds are subject to a 10% tax on long-term capital gains exceeding ₹1 lakh per annum without indexation. Debt-oriented funds are taxed at 20% with indexation after three years. Knowing these taxes helps you plan your investments more effectively.
