Performance Evaluation of Mutual Funds with ESG (Environmental, Social, Governance) Considerations

Abstract

This study evaluates investor awareness, perceptions, and challenges related to ESG (Environmental, Social, Governance) mutual funds in India. Primary data was collected from 99 respondents through a structured questionnaire. The study assessed awareness levels of ESG principles, perceptions of ESG fund effectiveness in delivering returns and managing risks, reliability of ESG ratings, relationship between ESG awareness and performance perceptions, and factors influencing investment decisions. Statistical tools including percentage analysis, Pearson correlation, Chi-square test, and One-Way ANOVA were employed. Key findings reveal that only 50.5 percent of respondents are aware of ESG principles, 34.4 percent believe ESG funds deliver competitive returns, and only 37.4 percent find ESG ratings reliable. Unclear ESG Ratings (26.3 percent) and Limited Availability of ESG Funds (25.3 percent) emerged as the top challenges. Correlation analysis shows moderate positive relationships between ESG awareness and perceived financial returns (r = 0.425, p = 0.001) and between ESG awareness and perceived risk management (r = 0.398, p = 0.002). ANOVA results indicate no significant differences in perceptions across age groups (p > 0.05). Financial Returns (79.8 percent) remains the primary decision factor for ESG investments. The study concludes that while ESG awareness positively correlates with better perceptions, significant structural challenges hinder wider adoption.

Introduction

This text discusses the growing importance of Environmental, Social, and Governance (ESG) mutual funds, particularly in India, and presents a research study on investor awareness, perceptions, and challenges related to them.

ESG investing has gained global traction over the past decade as investors increasingly consider ethical and sustainability factors alongside financial returns. In India, ESG mutual funds have expanded notably since 2019, supported by regulatory initiatives from SEBI and rising investor interest. Despite strong growth in the overall mutual fund market, ESG funds remain a small but fast-growing segment. However, issues such as inconsistent ESG ratings, lack of standard standards, and limited investor awareness continue to hinder wider adoption.

The study identifies a clear research problem: although ESG investing is growing, many Indian investors have low awareness, mixed trust in ESG ratings, and uncertainty about returns. Key challenges include confusing ESG scores, limited product availability, higher costs, and skepticism about performance. A significant portion of investors also feel current regulations are not fully supportive of ESG investing.

The objectives of the study focus on measuring investor awareness, understanding perceptions of ESG performance and risk, evaluating reliability of ESG ratings, analyzing the relationship between awareness and investment perceptions, and identifying key decision-making factors.

The literature review shows mixed findings: some studies suggest ESG funds provide stable or competitive returns and lower risk, especially during crises, while others highlight inconsistent ratings and limited evidence of superior performance. Overall, ESG investing appears beneficial in terms of risk reduction, but its financial outperformance is not guaranteed.

Methodologically, the study is based on primary survey data collected from 99 respondents using a structured 26-item questionnaire. It uses a descriptive research design with simple random sampling. Data analysis involves statistical tools such as percentage analysis, Pearson correlation, chi-square tests, and ANOVA using SPSS and Excel.

The scope is limited to Indian investors and focuses on perceptions rather than actual fund performance metrics. The study aims to provide insights for investors, fund managers, and policymakers. The limitations section is incomplete in the provided text.

Conclusion

This study evaluated investor awareness, perceptions, and challenges related to ESG mutual funds in India based on 99 survey responses. The key findings are summarized as follows: First, regarding investor awareness (Objective 1), only 50.5 percent of respondents are aware of ESG investment principles, with social responsibility being the least understood pillar (50.5 percent) compared to environmental factors (58.5 percent) and corporate governance (63.7 percent). Second, regarding perceptions of ESG fund effectiveness (Objective 2), only 34.4 percent believe ESG funds deliver competitive financial returns, while 44.4 percent believe they manage long-term risks effectively. Satisfaction is low at 37.4 percent, but long-term confidence remains high at 52.5 percent. Third, regarding ESG rating reliability and challenges (Objective 3), only 37.4 percent find ESG ratings reliable. Unclear ESG Ratings (26.3 percent) and Limited Availability of ESG Funds (25.3 percent) are the top challenges. Fourth, regarding the relationship between awareness and perceptions (Objective 4), correlation analysis confirmed moderate positive relationships between ESG awareness and perceived financial returns (r = 0.425) and risk management (r = 0.398). ANOVA confirmed no age-based differences (p > 0.05), and Chi-square confirmed no association between awareness and challenges (p = 0.298). Fifth, regarding decision-making factors (Objective 5), Financial Returns (79.8 percent) and Financial Performance (78.8 percent) remain the top priorities, while ESG Rating ranks fourth (57.6 percent). The study recommends that SEBI should mandate standardized ESG rating methodologies, AMCs should launch more ESG products, rating agencies should improve transparency, and investor education programs should focus on social responsibility factors. Future research should include larger sample sizes, actual financial performance data, and longitudinal studies.

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Copyright

Copyright © 2026 Dr. V. Kanimozhi, S. Harish. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.