Best ESG Mutual Funds in India (2026)
ESG mutual funds invest in companies that meet certain Environmental, Social, and Governance (ESG) standards. These funds select companies based on factors such as environmental practices, corporate governance quality, and social responsibility.
Under SEBI’s thematic mutual fund rules, ESG funds must invest at least 80% of their assets in companies that follow the fund’s defined ESG investment strategy.
Top 10 Best ESG Mutual Funds in India Based on Returns, Ranks & AUM
AUM Growth of Equity Esg Mutual Funds - May 2026
In the past one month, the Quantum ESG Best In Class Strategy Fund Direct Growth has emerged as the leader in net AUM growth, witnessing an impressive addition of ₹1.16 crore. This positions it as one of the top-performing Equity Esg mutual funds in terms of investor interest and fund growth.
Fund | 1M Net Flow | 1M Net Flow % | Action |
|---|---|---|---|
 Quantum ESG Best In Class Strategy Fund Current AUM: 92.31 Cr | +₹1.16 Cr | 1.22% | Invest |
 WhiteOak Capital ESG Best In Class Strategy Fund Current AUM: 53.03 Cr | +₹0.08 Cr | 0.15% | Invest |
 Quant ESG Integration Strategy Fund Current AUM: 225.6 Cr | -₹0.44 Cr | -0.17% | Invest |
 Mirae Asset Nifty 100 ESG Sector Leaders Fund of Fund Current AUM: 78.84 Cr | -₹0.94 Cr | -1.05% | Invest |
 Aditya Birla Sun Life ESG Integration Strategy Fund Current AUM: 565.96 Cr | -₹1.19 Cr | -0.20% | Invest |
Top Stock added by Equity Esg Mutual Funds - May 2026
Over the last month, Infosys Ltd has been added to the portfolios of 3 out of 11 Equity Esg mutual funds. This signals growing confidence in the stock’s long-term growth prospects among Equity Esg fund managers.
Top Stock sold by Equity Esg Mutual Funds - May 2026
In contrast, Bajaj Auto Ltd has been sold by 1 of 11 Equity Esg mutual funds in the last one month. This shift underscores a cautious approach by fund managers toward the stock, reflecting changing market dynamics.
Fund | 1M Net Flow | Action |
|---|---|---|
Quant ESG Integration Strategy Fund Decreased shares by 100.00% | -₹19.66 Cr | Invest |
Sector allocation of Equity Esg mutual funds - May 2026
Over the last 6 months, Equity Esg category has seen increased allocation towards Basic Materials, Health, Industrial sectors and allocation in Utilities, Communication, Real Estate sectors has decreased
Sector | AUM |
|---|---|
 Financial Services Decreased by 0.21%, in last 6M | 3.57K Cr |
 Consumer Cyclical Decreased by 3.44%, in last 6M | 1.81K Cr |
 Industrial Increased by 3.40%, in last 6M | 1.1K Cr |
 Tech Decreased by 20.74%, in last 6M | 975.01 Cr |
 Basic Materials Increased by 14.92%, in last 6M | 957.15 Cr |
 Health Increased by 10.22%, in last 6M | 686.18 Cr |
 Consumer Defensive Decreased by 19.16%, in last 6M | 444.25 Cr |
 Energy Decreased by 10.30%, in last 6M | 305.89 Cr |
 Communication Decreased by 27.82%, in last 6M | 246.25 Cr |
 Utilities Decreased by 47.66%, in last 6M | 160.04 Cr |
 Real Estate Decreased by 25.60%, in last 6M | 153.41 Cr |
What Are ESG Mutual Funds and How Do They Work?
ESG mutual funds invest in companies that meet certain environmental, social, and governance standards.
These funds evaluate companies based on factors such as:
- environmental impact and resource usage
- employee welfare and workplace practices
- board structure and corporate governance standards
Companies that do not meet the fund’s ESG criteria may be excluded from the portfolio.
SEBI classifies ESG funds as thematic equity mutual funds and has issued disclosure guidelines to improve transparency and reduce the risk of misleading sustainability claims.
Because ESG screening limits the number of eligible companies, portfolio composition may differ significantly between ESG funds depending on the evaluation framework used.
Returns are market-linked and not guaranteed.
SEBI's Classification Rule for ESG Mutual Funds
SEBI classifies ESG funds under the Thematic mutual fund category.
Key rules include:
- Minimum 80% of assets must be invested according to the fund’s ESG investment strategy
- The ESG methodology and screening framework must be disclosed in the Scheme Information Document (SID)
- Funds must clearly explain their ESG evaluation criteria and exclusions
- Each asset management company (AMC) can offer only one ESG scheme
These rules aim to ensure transparency and reduce the risk of greenwashing, where funds claim to follow sustainability principles without clearly defined criteria.
How Do ESG Mutual Funds Generate Returns?
ESG mutual funds generate returns through investments in companies that meet ESG standards.
1. Quality-focused stock selection
Companies with strong governance and sustainability practices may have lower regulatory and reputational risks, which can support long-term business stability.
2. Long-term capital appreciation
Returns primarily come from the growth in earnings and stock prices of companies included in the portfolio.
3. Investor demand for ESG investments
As global investors increasingly consider sustainability factors, companies with strong ESG profiles may attract more investment.
4. Dividends
Many ESG-compliant companies distribute dividends, which can contribute to investor returns.
Because ESG screening reduces the number of eligible companies, the portfolio may differ from broader market indices.
Who Should Invest in ESG Mutual Funds?
ESG mutual funds may be suitable for:
- Investors who want their investments to align with environmental, social, and governance principles
- Long-term investors who believe companies with strong governance and sustainability practices may deliver durable growth
- Investors seeking exposure to companies that follow responsible business practices
- Investors with a long-term investment horizon of 5 years or more
They may not be suitable for:
- Investors seeking maximum exposure to the entire equity market
- Investors focused on short-term returns
- Investors who prefer traditional diversified equity funds without screening criteria
Advantages of ESG Mutual Funds
ESG mutual funds offer several potential benefits.
- Responsible investing approach
These funds allow investors to consider environmental and social factors alongside financial performance.
- Focus on governance and transparency
Companies with strong governance practices may have lower risks related to fraud, regulatory penalties, or management issues.
- Growing global investment trend
Institutional investors and global markets are increasingly incorporating ESG considerations into investment decisions.
- Long-term sustainability focus
Companies with responsible environmental and social practices may be better positioned for long-term regulatory and societal changes.
Risks of ESG Mutual Funds
Despite their potential benefits, ESG funds also carry certain risks.
- Limited investment universe
Screening companies based on ESG criteria may reduce the number of eligible stocks.
- Variation in ESG methodologies
Different funds may use different ESG scoring frameworks, which can lead to significant differences in portfolio composition.
- Sector concentration
Some sectors may dominate ESG portfolios depending on the screening process.
- Market risk
Like all equity mutual funds, ESG fund returns depend on stock market performance and may fluctuate.
Investors should evaluate their financial goals, risk tolerance, and investment horizon before investing.
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