The Indian mutual fund industry is witnessing a growing shift toward responsible and sustainable investing. Investors today are not only looking for financial returns but also want their money to support ethical business practices and environmental protection. In this context, the newly launched Baroda BNP Paribas ESG Best-in-Class Strategy Fund NFO has attracted significant attention.
Launched by Baroda BNP Paribas Mutual Fund, this new fund combines equity investing with Environmental, Social, and Governance (ESG) principles. It aims to provide long-term capital appreciation by investing in companies that demonstrate strong ESG performance along with sound financial fundamentals.
This article explains everything you need to know about the NFO – its objective, strategy, features, benefits, risks, and whether it suits your investment goals.
What is the Baroda BNP Paribas ESG Best-in-Class Strategy Fund?
The Baroda BNP Paribas ESG Best-in-Class Strategy Fund is an open-ended equity mutual fund with a thematic focus on ESG investing. The fund selects companies that rank high on ESG parameters within their respective sectors and then applies traditional financial analysis to build a diversified portfolio.
Instead of simply avoiding certain industries, this fund follows a “Best-in-Class” approach. That means it invests in the top ESG performers within each industry rather than excluding entire sectors. This approach allows investors to benefit from growth opportunities while maintaining responsible investment standards.
Investment Objective
The primary objective of the fund is:
To generate long-term capital appreciation by investing in equity and equity-related securities of Indian companies that score well on Environmental, Social, and Governance (ESG) parameters.
However, as with all equity funds, there is no guarantee of returns, and performance depends on market conditions and stock selection.
Understanding the “Best-in-Class” ESG Strategy
Unlike exclusion-based ESG funds that simply remove certain sectors like tobacco or gambling, the Best-in-Class strategy works differently:
1. ESG Screening
Companies are evaluated based on:
- Environmental impact (carbon footprint, resource usage, waste management)
- Social responsibility (employee welfare, customer safety, community engagement)
- Governance standards (board structure, transparency, ethics, compliance)
2. Sector Ranking
Each company is compared with peers in the same industry. Only those scoring above the median ESG level are shortlisted.
3. Financial Analysis
After ESG filtering, companies undergo:
- Fundamental analysis
- Growth potential assessment
- Profitability and balance sheet evaluation
- Management quality review
This dual filter ensures that the fund invests in sustainable and financially strong companies.
What the Fund Avoids
The fund excludes companies involved in:
- Tobacco and alcohol
- Gambling and betting
- Environmentally harmful activities
- Businesses with poor social or governance records
This makes the fund suitable for investors who want ethical and socially responsible investment options.
Key Features of the NFO
1. NFO Period
The fund is open for subscription for a limited time during the New Fund Offer period.
2. Offer Price
Units are available at an initial price of ₹10 per unit during the NFO.
3. Benchmark Index
The fund is benchmarked against the Nifty 100 ESG Total Return Index, which tracks companies with strong ESG performance.
4. Risk Profile
Since it is an equity-oriented thematic fund, it falls under the Very High Risk category.
5. Minimum Investment
- Lump sum: ₹1,000
- SIP: ₹500 per installment
6. Exit Load
- 1% exit load if more than 10% of units are redeemed within one year
- No exit load after one year
Why ESG Investing is Gaining Popularity in India
ESG investing is no longer a niche concept. It is becoming mainstream for several reasons:
- Climate awareness: Investors want to support companies that protect the environment.
- Corporate governance scandals: Strong governance reduces long-term risks.
- Regulatory focus: ESG disclosures are becoming mandatory.
- Long-term stability: ESG-compliant companies often show better resilience during crises.
Studies globally suggest that ESG-focused portfolios can deliver competitive returns with lower long-term risks.
Portfolio Construction Approach
The fund manager follows a disciplined investment process:
- Bottom-up stock selection
- Sector diversification
- ESG compliance monitoring
- Periodic portfolio review
The portfolio may include companies from sectors such as:
- Banking and financial services
- IT and technology
- Healthcare
- Consumer goods
- Renewable energy and clean technology
This helps maintain balance between growth and sustainability.
Who Should Invest in This Fund?
This NFO is suitable for:
- Investors with a long-term horizon (5+ years)
- Those interested in ethical and sustainable investing
- Investors comfortable with high equity risk
- SIP investors seeking disciplined exposure to ESG stocks
- Young professionals and millennials focused on responsible wealth creation
It may not be suitable for:
- Short-term investors
- Conservative investors looking for guaranteed returns
- Those uncomfortable with market volatility
Benefits of Investing in This NFO
1. Dual Advantage: Growth + Responsibility
You get exposure to high-quality companies while supporting sustainability and good governance.
2. Professional ESG Screening
Individual investors may find it difficult to evaluate ESG parameters. The fund does this professionally.
3. Long-Term Wealth Creation
Equity funds focused on quality companies can generate strong returns over time.
4. Diversification
The fund invests across multiple sectors and companies, reducing concentration risk.
5. Alignment with Global Trends
Globally, ESG funds are seeing large inflows, indicating strong future potential.
Risks to Consider
Despite its benefits, investors must be aware of risks:
- Market risk due to equity exposure
- Thematic risk since ESG is a focused strategy
- Performance depends on fund manager’s stock selection
- ESG scoring methods can vary across agencies
Investors should not treat this as a substitute for diversified core equity funds but rather as a thematic allocation.
Taxation
The fund is taxed like any other equity mutual fund in India:
- Short-term capital gains (holding less than 1 year): 15%
- Long-term capital gains (above ₹1 lakh after 1 year): 10%
Dividends are taxable as per the investor’s income slab.
ESG Fund vs Regular Equity Fund
| Feature | ESG Fund | Regular Equity Fund |
|---|---|---|
| Stock Selection | ESG + financial criteria | Only financial criteria |
| Ethics Focus | High | Low or none |
| Long-term Risk | Potentially lower | Depends on portfolio |
| Suitability | Responsible investors | General investors |
Final Verdict: Should You Invest?
The Baroda BNP Paribas ESG Best-in-Class Strategy Fund NFO is a good option for investors who want to combine financial growth with responsible investing. It follows a structured ESG-based investment framework and aims to identify high-quality companies within each sector.
However, being a thematic equity fund, it should form only a part of a diversified portfolio. Investors should already have exposure to large-cap, flexi-cap, or index funds before adding ESG funds.
For long-term investors who believe in sustainable development and ethical business practices, this NFO offers an attractive opportunity to align investments with values.
