Last Updated on April 10, 2025 by Rakshitha

Investors perception towards ESG funds

Due to the rising relevance of sustainable and responsible investment, investors’ views of Environmental, Social, and Governance (ESG) funds have changed. A study of intention and behaviour of Indian retail investors increasingly use ESG funds to connect their financial objectives with their ethical principles, prioritizing long-term sustainability above short-term gains. Performance evaluation of ESG funds in India growing knowledge of climate change, social justice, and corporate governance has changed investment objectives, especially among younger and institutional investors. The impact of ESG management on investment decision funds analyze firms for environmental, social, and governance issues and are becoming a popular strategy to reduce the risk of unsustainable business practices.

Many believe that organizations with good ESG policies are more resilient and better positioned for long-term success. Investors recognize that companies with strong environmental, social, and ethical governance strategies are more transparent, suffer fewer regulatory difficulties, and have better brand views. Therefore, ESG funds are seen as both morally responsible and financially sensible. ESG funds have outperformed standard funds in volatile markets, according to many research.

Some investors are wary of “greenwashing,” when firms inflate their ESG credentials to attract investment. Transparency and uniform reporting are important since conflicting ESG criteria may make it hard for investors to evaluate portfolio sustainability. ESG funds are growing more popular due to regulatory restrictions, socially aware investors, and a worldwide trend toward sustainability in company operations. As these funds acquire popularity, ESG-focused products should proliferate in the financial environment.

A study of intention and behaviour of Indian retail investors

The aim and conduct of Indian individual investors have garnered attention as their stock market involvement expands. Indian individual investors traditionally preferred fixed deposits, gold, and real estate over shares owing to risk. Their intents have changed due to financial literacy, investing platforms, and financial services digitalization. Retail investors now want bigger returns, wealth development, and financial independence, especially when savings interest rates fall. This shifting perspective is encouraging more people to invest in stocks, mutual funds, and other options.

Despite this transition, Indian individual investors are cautious and opportunistic. Market movements, news, and social mood affect many retail investors’ short-term, reactive investment. Herd mentality, FOMO, and overconfidence may influence financial choices, causing hasty behaviors during market volatility. While some are embracing mutual fund SIPs for focused, long-term growth, many retail investors still choose speculative trades and short-term returns. This behavioral element emphasizes the need for financial education and awareness to encourage good investing behaviors.

The COVID-19 epidemic has also affected Indian retail investors’ investing behaviour. The ease of digital trading platforms and more time at home attracted many first-time investors who sought to profit on market volatility. Online trading applications and robo-advisors make portfolio management simpler for regular investors. New investors have democratized market participation, but they have also raised worries about retail-driven market fluctuations and risk overexposure. Thus, ethical investment and market stability regulations need understanding Indian retail investors’ intentions and behavior.

Performance evaluation of ESG funds in India

ESG (Environmental, Social, and Governance) funds in India have shown positive returns in recent years, indicating a rising interest in sustainable investment. ESG funds in India have outperformed typical equity funds amid market volatility because they concentrate on firms with good governance, ethics, and environmental responsibility. These funds are being used by investors to invest in financially stable, long-term enterprises. As sustainability regulations tighten, these funds’ attractiveness has increased due to the beneficial association between excellent ESG ratings and financial success.

ESG funds in India are resilient and competitive, but they face hurdles. Investors struggle to compare funds and analyze their sustainability effect due to the absence of defined ESG indicators. In certain cases, ESG-focused funds may underperform wider market indexes since energy and industries in India rely significantly on non-renewable resources. Despite these issues, individual and institutional investors have been drawn to ESG funds for their long-term growth and reduced risk.

The developing regulatory framework in India may also boost ESG fund performance. Business responsibility and sustainability reporting rules from SEBI will increase openness and strengthen the ESG ecosystem. ESG funds should perform better as more firms adopt global sustainability guidelines and standardize ESG reporting. The rising desire for socially responsible investments, along with greater knowledge of climate change and ethical corporate practices, suggests that ESG funds in India will continue to play an important role in the investing landscape.

The impact of ESG management on investment decision

Environmental, Social, and Governance (ESG) management has changed how investors evaluate firms and distribute money. Sustainability, ethics, and corporate governance are increasingly considered key indications of long-term success and risk reduction in ESG management. Investors increasingly use ESG criteria to find lucrative, ethical, and sustainable enterprises. The rising realization that organizations with good ESG practices are better positioned to negotiate regulatory changes, environmental concerns, and societal pressures makes them more robust to global difficulties.

Rising openness and accountability have also affected ESG management in investment choices. Institutional and socially concerned individual investors are analyzing company conduct more thoroughly, choosing firms that are really sustainable. Investors now favor companies with good ESG strategies because they are more likely to have superior operational efficiency, stronger reputations, and fewer crises and regulatory penalties. ESG management also protects investors from unsustainable business models including environmental deterioration and labor abuse.

The influence of ESG management on investment choices is not without issues. The absence of defined ESG measurements and reporting standards might make it difficult to analyze a company’s ESG performance. Another concern is “greenwashing,” when corporations exaggerate their ESG efforts to attract investors. Despite these hurdles, investors are increasingly integrating ESG management into investment strategies as they see the long-term financial advantages and decreased risks of sustainable and responsible corporate practises. The tendency will certainly expand as regulatory requirements improve and ESG reporting becomes more standardized across sectors.

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