Those wanting to be conscious of their environment now have an investment option to consider. Socially Responsible Investing (SRI) has come to India via ABN AMRO Mutual Fund.
What exactly is SRI?
Socially Responsible Investing refers to an investment strategy that combines a financial return without compromising on the social good.
So what it means is that investments will only be made in those companies that fulfil certain conditions. These conditions could be that they are environmentally responsible or do not dabble in businesses that have an ethical issue like manufacture of arms or liquor or tobacco.
What this fund is all about
ABN AMRO has 24 such funds in Europe, Asia and Latin America. The ABN AMRO Sustainable Development Fund, launched in India, is the 25th.
The point to note is that this fund will not focus on subjective ethical issues like armaments, liquor or tobacco. Instead it will only focus on objective parameters like the environmental and social performance of the company.
Which companies?
The fund has employed the independent rating agency CRISIL to come up with a list of such stocks. CRISIL first took all the 500 companies that comprise the stock index S&P CNX 500.
CRISIL framed 100 questions to cover the social parameters and another 100 to cover the environmental issues. Based on how the company scored against these questions, a score was given.
Finally, the list was narrowed down to 245 companies.
The investment team of the fund will only look at these 245 companies to invest in. They will do the financial analysis and pick up stocks that they believe will give a good return.
Will they perform well?
No one can predict the performance of a fund. But the fund is clear that it is not doing any charity here. So even if CRISIL gives one stock a very good ESG rating referring to its environmental and social governance - but the fund manager feels that it will not make a good investment for other reasons, then they will not invest in that stock.
However, they did do some back testing to get an idea whether this concept will work in India.
Back testing is when you go back in time and test the same data. So they studied the returns given by all the 245 stocks selected over a period of six years (December 2000 2006). All these stocks together gave a return of 31 per cent per annum over these years.
The fund in a nutshell
The fund is a diversified equity fund.
This means that the fund will invest in shares of various companies of different market capitalisations.
The fund is a close-ended equity fund.
In an open-ended fund, you can buy and sell units anytime. A close-ended fund has a fixed tenure; ABN AMRO Sustainable Development Fund's tenure is of three years. That means you can only buy the units when the fund is launched. And sell it when the fund matures, that is, after three years.
In such a case, you pay no entry load or exit load. If you sell your units before three years, then you have to pay an exit load.
Issue opened: March 5, 2007
Issue closes: March 30, 2007
Cost per unit: Rs 10
Minimum investment: Rs 5,000
Fund Manager: Prateek Agrawal
Index against which the fund's performance will be benchmarked: BSE 200
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