ESG Mutual Funds and Portfolio Resilience Across Market Phases : Evidence from India

Abstract

Purpose: This study is a comparative analysis of the financial performance of ESG mutual funds,
conventional equity funds, ESG indices, and general market indices in India across three distinct
periods: pre-COVID, during COVID, and post-COVID. The aim is to evaluate the performance of these
investment vehicles during varying market conditions, with a focus on key metrics including returns,
volatility, and risk-adjusted performance measures.
Methodology: The study employs quantitative analysis to assess performance metrics, such as returns,
volatility, and risk-adjusted measures. Key performance indicators include the Sharpe ratio, Treynor’s
ratio, Jensen’s alpha, Information Ratio, and Fama’s Decomposition measure. Performance data is
analyzed across three periods (pre-, during, and post-COVID) to capture shifts in risk and return
dynamics among ESG and conventional funds.
Findings: ESG funds and indices exhibited greater resilience and lower volatility during periods of
market stress while conventional funds delivered superior performance during recovery phases.
However, in the post-COVID period, conventional funds experienced a strong rebound, delivering
higher returns and improved risk-adjusted performance compared to ESG funds, which struggled to
maintain competitiveness. The study reveals that while ESG funds offer lower volatility, suitable for
risk-averse investors, conventional funds show greater growth potential during recovery-driven market
conditions.
Practical Implications: These findings provide valuable insights for investors, fund managers, and
policymakers. The study underscores the complementary strengths of ESG and conventional funds
across crisis and recovery phases, suggesting a role for each in diversifying portfolios based on market
conditions and investor risk tolerance.
Originality: This study contributes to the empirical literature risk, portfolio performance and ESG
investing in emerging markets. It offers guidance for structuring resilient portfolios in a post-pandemic
world, highlighting the differentiated roles of ESG and conventional funds in adapting to varied market
conditions and economic recovery stages.