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Kotak ESG Opportunities Fund: Aiming for Sustainable Profitability
Nov 24, 2020

'Do good and good will come to you'

This quote aptly captures the essence of Environmental, Social and Governance (ESG) investing. A company that is responsible towards its environmental, social and governance footprint can be expected to grow sustainably.

Nowadays citizens are growing more aware about their responsibility towards environment and society. It is likely that sooner or later they would prefer to invest in companies that share their vision for a better tomorrow.

ESG investing, a theme that aims to identify companies that score on ethical parameters, is a popular concept globally. In India too, this theme is gradually gaining momentum. SBI MF, Quantum MF, Axis MF, ICICI Pru MF, and Mirae Asset MF are the fund houses that have launched an ESG fund over the past couple of years.

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Kotak ESG Opportunities Fund is the latest fund to join the ESG investing bandwagon. Notably, Kotak AMC identifies itself as the leader in the ESG universe, being the first AMC in India to sign United Nations Principles for Responsible Investment (UNPRI). The AMC follows active implementation of responsible investment policies for equity and debt.

Being a thematic fund, Kotak ESG Opportunities Fund will deploy a minimum 80% of its assets in equity & equity related instruments following an ESG investment strategy. The scheme will invest in companies based on financial parameters and non-financial factors such as Environmental, Social and Governance as a part of its research process to identify material risks and growth opportunities.

Kotak ESG Opportunities Fund, an open-ended equity scheme, will seek to generate capital appreciation by investing in a diversified portfolio of companies that follow Environmental, Social and Governance parameters with the flexibility to invest across market capitalisation. However, there is no assurance or guarantee that the investment objective of the scheme will be achieved.

Table 1: Details of Kotak ESG Opportunities Fund
Type An Open ended Equity Scheme following Environment, Social and Governance (ESG) theme Category Thematic Fund
Investment Objective To generate capital appreciation by investing in a diversified portfolio of companies that follow Environmental, Social and Governance parameters. However, there can be no assurance that the investment objective of the Scheme will be achieved.
Min. Investment Rs 5,000 and in multiples of Re 1 thereafter Face Value Rs 10/- per unit
  • Direct
  • Regular
  • Growth
  • Dividend
Entry Load Not Applicable Exit Load - An Exit Load of 1% is payable if Units are redeemed / switched-out upto 1 year from the date of allotment;
- Nil if Units are redeemed / switched-out after 1 year from the date of allotment
Fund Manager - Mr Harsha Upadhyaya Benchmark Index Nifty 100 ESG (Total Returns Index)
Issue Opens: November 20, 2020 Issue Closes: December 04, 2020
(Source: Scheme Information Document)

Investment strategy - Kotak ESG Opportunities Fund

Kotak ESG Opportunities Fund will through internal diligence and/or in consultation with external advisors identify stocks which have an ESG orientation in the opinion of the fund manager.

ESG stands for Environmental, Social and Governance; an investment theme that focuses on 'how the investee company makes money', rather than just 'how much money it makes'. The critical questions the fund will emphasize on are:

Environmental - Does the company have a positive or negative impact on the environment?

Social - How does the company treat its employees, customers and community?

Governance - Is the company governed in a fair manner?

Kotak ESG Opportunities Fund's asset allocation pattern under normal circumstances will be as under:

Table 2: Asset Allocation of Kotak ESG Opportunities Fund
Instruments Indicative Allocation
(% of assets)
Risk Profile
Minimum Maximum
Equity and Equity related instruments following Environmental, Social and Governance (ESG) criteria (including derivatives and foreign securities) 80 100 High
Equity and Equity related instruments other than those mentioned above 0 20 Medium to High
Debt and money market instruments* 0 20 Low to Medium
Units of REITs & InvITs 0 10 Medium to High

*Debt instruments shall be deemed to include securitised debts (excluding foreign securitised debt) and investment in securitised debts may be up to 50% of Debt and Money Market instruments. This will also include margin money for derivative transactions.

(Source: Scheme Information Document)

The fund manager would be guided by ESG scores, but not restrained by it and will use his discretion to decide on companies with long term sustainable businesses with good ESG practices. Based on the ESG criterion, the fund manager would identify a list of companies. The final selection of stocks & sectors would be driven primarily by the growth prospects and valuations of the businesses over a medium to long term as per the discretion of the fund manager within this universe.

The fund will select around 40-60 stocks across market capitalisation based on the ESG score and the AMC's proprietary Business, Management & Valuation (BMV) approach.

The said universe of ESG compliant stocks will be re-assessed from time to time to update and evaluate the continuity and sustainability of the company and its adherence to the ESG norms as understood by the AMC.

BREAKING: Full Details of the #1 Investment of the Decade...

Who will manage Kotak ESG Opportunities Fund?

Kotak ESG Opportunities Fund will be managed by Mr Harsha Upadhyaya

Harsha Upadyaya is the Chief Investment Officer - Equity at Kotak Mahindra AMC. Harsha has over two decades of experience spread across equity research and fund management. He has previously worked with DSP BlackRock, UTI Asset Management, Reliance Group and SG Asia Securities. Harsha completed his Bachelor of Engineering (Mechanical) from National Institute of Technology, Suratkal, and holds a Post Graduate Diploma in Management (Finance) from Indian Institute of Management, Lucknow. He also holds Chartered Financial Analyst charter from the CFA Institute, US.

Harsha is the fund manager of some of the prominent schemes of the AMC such as Kotak Standard Multicap Fund, Kotak Equity opportunities Fund, and Kotak Tax Saver Fund.

Fund outlook - Kotak ESG Opportunities Fund

ESG Funds focus on investing in high quality stocks of companies demonstrating sustainable practices across Environment, Social, and Governance theme. This reduces the company-specific risk associated with ESG controversies.

Being an actively managed fund, Kotak ESG Opportunities Fund's performance will depend on its ability to identify stocks that score high on both ESG initiatives and growth prospects at reasonable valuations. Companies with high ESG score can exhibit better risk-adjusted returns, which in turn could create value for investors with its sustainable long term profitability.

One should have a long term investment horizon and ability to handle market volatility while investing in Kotak ESG opportunities Fund.

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Author: Divya Grover

This article first appeared on PersonalFN here.

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PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


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