Are ESG Funds Ideal for Long Term Goals?

ESG, full for Environmental Social and Governance, refers to standards at which companies to comply their standards if they wish to make a reputation as one of the fastest and modest developing companies in the market. In mutual funds, ESG funds refers to those mutual funds who stringently assess companies based on the three parameters i.e. Environmental Social and Governance. ESG funds generally avoid companies that directly or indirectly deal with products and services that might aid global warming, climate change or any other unsustainable activities. 

ESG funds for long term goals?

Planning on investing in ESG funds? Here’s why you need to have a long term investment horizon –

They are equity oriented schemes

ESG funds predominantly invest in a diversified portfolio of company stocks and securities of companies that comply with ESG guidelines. Generally, investments made in equity oriented schemes only tend to show their true potential if given a choice to multiply in the long run through systematic investing. Equity investments are also known to offer far better capital appreciation as compared to conservative avenues. However, one needs to have a long term investment horizon to make the most out of their investments.

Sensitive to constant market fluctuations

ESG funds are ideal for targeting long term financial goals for a reason. And the reason is that an investor’s ESG portfolio might get affected over the short term. ESG funds predominantly invest in company stocks and other equities of sustainable companies, making them prone to the constant market fluctuations. There is a good chance of your ESG portfolio occurring losses over the short term. Thus, as ESG investors, it is better for investors to have a long term investment horizon. 

Achieve long term goals 

It is essential for investors to make sure that they can achieve their life’s long term financial goals with ease. For that, one must start investing at an early stage in their lives. Most individuals are emotionally connected to their long term goals and hence have a similar bond with their investments as well. ESG funds are ideal for achieving one’s long term financial goals like building a retirement corpus, sending their children overseas for foreign education, buying a weekend home by the countryside, etc. 

Start a SIP in ESG funds

In case you decide to invest in ESG funds for the long run, do consider starting a SIP. Systematic Investment Plan, abbreviated as SIP, is an easy and hassle free way to invest in ESG funds. All an investor must do is complete a one time mandate with his or her bank account. One should be KYC complaint in order to invest in ESG funds via SIP. Every month on a fixed date, a predetermined amount is debited from your savings account and electronically transferred to the ESG fund. The beauty of SIP investments is that investors get to decide how much money they want to invest in ESG funds every month. However, this investment amount should comply with the minimum investment amount mentioned in the offer document. 

ESG funds do hold the potential to offer capital appreciation over the long term, but investors should understand that these are market linked schemes which are exposed to market’s volatile nature daily. When you are investing in volatile markets, it is never a good idea to only depend on one asset class. Depending on your risk appetite, investors should diversify their portfolio with the right mix of equity and debt assets. Investing is a long journey and one needs to be patient with their ESG investments if they really wish to target their long term financial goals.

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