Management Journal for Advanced Research

1. Introduction

Socially Responsible Investment (SRI) is an investment approach that looks beyond the narrow pursuit of profits, incorporates ethical, social, and environmental considerations to select and manage assets that generate competitive returns while encouraging sustainable business practices. During the post-pandemic scenario, investment attitudes have greatly transformed in the global financial landscape. This attitude toward social responsibility is getting synergy from global sustainability problems such as climate change, resource depletion, and social inequality has accelerated this trend. With the rise of socially responsible investment (SRI), Investors are shifting away from the traditional criteria of risk and return to portfolios that are ethically, environmentally, and socially valuable. SEBI, the regulatory authority of the Indian capital market, also comes up with lots of rules and regulations to encourage socially responsible investment, including mandatory Business Responsibility and Sustainability Reporting (BRSR) practice for listed companies, guided by the framework of ESG disclosures, etc. Still, the understanding of sustainability practices and the framework for ESG are at a formative stage in India. In this scenario mutual fund plays a great role in mobilising and channelizing funds toward sustainability or social responsibility. SEBI implements the ESG-themed mutual fund as a socially responsible investment avenue in this regard.

Socially responsible mutual funds that are often structured on ESG principles, which become a key mechanism for individual and institutional investors to espouse financial objectives with a sustainability focus. Although the introduction of ESG-focused mutual funds signals a growing recognition of responsible investment within the Indian financial ecosystem, important queries, including the sectors these funds prioritize in their allocation strategies, the direct capital growth toward green and social impact industries by these funds, investors' response towards these funds in terms of AUM growth, or the investor attitudes towards there cost efficiency remain untouched by existing knowledge and hence this create an urge for knowledge about Whether these funds are genuinely channelling resources toward environmentally and socially impactful sectors or merely mirroring conventional strategies with an ESG overlay.

The study employs standard performance measures such as the Sharpe ratio, Treynor ratio, and Jensen’s alpha to assess risk-adjusted returns across a sample of ESG-focused funds. Findings indicate that funds have delivered competitive returns comparable to conventional funds. Oikonomou et al. (2025) provide an essential empirical examination of whether socially responsible investment funds diverge from traditional portfolio optimization approaches, particularly in terms of sectoral allocation and diversification. The findings reveal that SRI funds frequently display lower levels of diversification compared to traditional mutual funds. Furthermore, it suggests that this lower diversification is largely attributed to overweight positions in sectors perceived as sustainability-aligned. However, the study also notes that SRI portfolios can significantly reduce concentration biases and align performance more closely with efficient frontier expectations.

3. Research Gap

Although a substantial body of research has examined the performance and risk–return characteristics of socially responsible investment, mainly mutual funds having a lineage to social attitude, remain concentrated on developed markets, and, hence, in the emerging market context, where the socially responsible investment is evolving, it remains relatively underexplored. Again, the existing literature has primarily emphasized the performance metrics and paid limited attention to the sectoral allocation patterns of socially responsible funds. As a result, it is unclear whether these funds are truly channelling capital into priority sustainable sectors or whether they simply replicate conventional allocation strategies. Furthermore, the knowledge about investor responses toward socially responsible funds is little found in the literature. This leaves a significant gap in understanding the role of mutual funds as “drivers” of socially responsible investment by simultaneously channelling resources to responsible sectors and mobilizing investor capital in emerging markets.

4. Research Question

1. What is the meaning of socially responsible mutual funds?
2. What is the recent trend of socially responsible mutual funds in India as an emerging market?

• Kotak ESG Exclusionary Strategy Fund
• Invesco India ESG Integration Strategy Fund

The Sectoral Assets Allocation and Total Assets under Management (AUM) Growth is considered as the dependent variable, and Expense Ratios are considered as the independent variable for said study.

The practice of ESG compliance is a new concept to Indian firms as well as to investors. In this context, the Mutual fund is considered the primary avenue for investors to take steps toward sustainable or social investment and mobilize funds to sustainable or socially responsible opportunities. The above table illustrates the resource allocation patterns of select leading ESG-themed mutual fund schemes in India and reflects that the allocation pattern of the said schemes is concentrated more in traditional sectors such as Financial Services, IT, and Automobiles. In contrast, the newer or directly “green” sectors or the sectors that could be a leading contributor to the Environmental and Social impact, like renewable energy, clean technology, or sustainable agriculture, are scarcely considered. This articulates a clear picture of the socially responsible investment pattern in India.

The table exhibits the growth rates of Assets under Management and Expense Ratios for selected ESG-themed mutual funds in India for a period of five financial years, starting from 2020 to 2025. There exists a notable variation in performance and stability among the selected schemes.

The SBI ESG Exclusionary Strategy Fund, the oldest sustainable fund in India, exhibits a moderate, yet positive, average growth rate with relatively lower volatility, indicating a balanced yet inconsistent performance. Again, the Axis ESG Integration Fund records a persistently negative average growth rate across the study period, reflecting weaker performance in attracting investor traction despite maintaining a stable expense ratio. This can be a clear reflection of strategy adoption regarding resource allocation practice.

Analysis 3: Association between Expense Ratios with Assets under Management:

• H0: There is no significant association between expense ratios and AUM growth of ESG-themed mutual funds in India

The table shows the value of Pearson’s correlation (r) between expense ratios and AUM growth across ESG-themed mutual funds in India. A mixed and largely insignificant relationship has been observed all over the funds. Overall, the findings imply that expense ratios, while stable across funds, do not play a decisive role in explaining AUM growth.

fund-specific strategies, and resource allocation patterns than by expense ratios.

8. Findings and Conclusions

This study analyses sectoral allocation patterns, investor participation, and the relationship between expense ratios and AUM growth of selected ESG-themed mutual funds in India. The analysis reveals important insights regarding the said objectives in the consequent ways,

The resource allocation patterns of selected ESG mutual funds highlight a strong bias toward traditional sectors such as financial services, IT, and automobiles. The SBI ESG Exclusionary Strategy Fund allocated more than one-third of its portfolio to financial services and significant proportions to IT and automobiles. Again, it has been observed that it demonstrated moderate but inconsistent growth, averaging around 10% with fluctuations across the years. Similarly, the Axis ESG Integration Fund and Quant ESG Integration Fund also displayed high allocations in mainstream sectors. As a result, negative growth rates have been achieved by the Axis ESG Integration Fund, indicating weak investor confidence in its strategy. On the other hand, the Quant and Kotak ESG funds recorded highly volatile growth trajectories, indicating a high-risk, high-return profile, appealing to more aggressive investors. Furthermore, the resource allocation pattern of ESG-linked mutual funds toward high-impact sustainable sectors, such as renewable energy, clean technology, or sustainable agriculture, remains limited or little in nature. Rather, as a component of a socially responsible investment avenue, this asset management houses targeting sectors or companies performing better environmental, social, and governance practices, as well as offering greater return, and hence allocation toward the core green sector is neglected to a great extent. This allocation trend reflects the broader Indian market context, where fund trust toward the conventional sector and stability and profitability over core sustainability and social impact.

Additionally, results of the Correlation analysis between expense ratios and AUM growth revealed that cost efficiency is not a decisive driver of AUM growth in ESG mutual funds, although the expense ratios across all funds remained relatively stable between select funds, which indicates that cost structure across funds remains similar, as per the Indian market concern.

References

1. Das, N., Ruf, B., Chatterjee, S., & Sunder, A. (2018). Fund characteristics and performances of socially responsible mutual funds: Do ESG ratings play a role?. arXiv preprint. https://doi.org/10.48550/arXiv.1806.09906

2. Ghoul, S.E., & Karoui, A. (2019). Fund performance and social responsibility: New evidence using social active share and social tracking error. SRPN: Sustainable Business (Topic). https://doi.org/10.2139/ssrn.3489201

3. Oikonomou, I., Tsalavoutas, I., & Xiao, T. (2025). Do socially responsible investment funds deviate from traditional portfolio optimization? Financial Innovation, 11(1), 1–24. https://doi.org/10.1186/s40854-025-00761-4

4. Parida, S., & Wang, Z. (2018). Financial crisis and corporate social responsible mutual fund flows. International Journal of Financial Studies, 6(1), 8. https://doi.org/10.3390/ijfs6010008

5. Rohilla, A. (2023). Evaluation of performance of selected Indian ESG funds. Sachetas, 2(1), 18-26. https://doi.org/10.55955/210003

6. Tripathi, V., & Kaur, A. (2021). Does socially responsible investing pay in developing countries? A comparative study across select developed and developing markets. FIIB Business Review, 11(2), 189-205. https://doi.org/10.1177/2319714520980288