As an environmentally concerned Non-Resident Indian, are you willing to stand beside Indian businesses adopting ESG-compliant practices and help the Nation achieve its environmental commitments? The latest financial and regulatory innovations in the form of ESG mutual funds and exchange-traded funds make it perfectly possible. They offer lucrative long-term RoI also. 

This article provides a comprehensive guide for NRIs wanting to invest in ESG MF and ETFs. 

What are ESG mutual funds and ETFs?

ESG (Environmental, Social, and Governance) funds are mutual funds and ETFs that invest according to strict climate, society, and business governance metrics set by SEBI.

Many mutual fund companies and Portfolio Management Services (PMS) are offering ESG-focused funds. 

As per the Securities and Exchange Board of India (SEBI) framework, equity ESG mutual funds must invest at least 80% of their assets in equity and equity-related instruments of companies that meet defined ESG criteria and BRSR((Business Responsibility and Sustainability Reporting) disclosure norms.

• Environmental criteria include waste management practices, emission performance, and other climate impacts of business operations. 

• Social criteria cover underlying companies' performance in terms of employees and community welfare, human rights, and consumer rights protection. 

• Governance criteria address auditing standards, shareholders' rights, leadership accountability, internal control, and regulatory compliance.   

As of late 2025, most ESG equity mutual funds with a 5-year track record in India have delivered roughly 13 to 17% annualised returns, with a few funds performing even higher.

The principal guideline behind asset management at ESG funds is not merely ethical compliance. Instead, ESG criteria help stringently measure and evaluate the business resilience and the sustainability of the capital flow of a company. 

Investing in ESG funds helps generate long-term wealth while staying committed to environmental sustainability. 

Why should NRIs invest in ESG funds? 

Investing in environmentally-sustainable businesses does not mean making charity at the cost of investors' financial goals. SEBI-regulated ESG funds and ETFs in India are as attractive as any other mutual funds, if not better. 

1. Align wealth-building goals with personal values:

Worldwide, investors are fast becoming concerned about the importance of following their personal value system. They are willing to disassociate themselves from businesses and brands that are harmful to the environment, public health, and societal wellbeing. However, for individual investors, it can be difficult to research, audit, and pick the best stocks that strictly adhere to environmental, social, and governance standards. ESG mutual funds serve that purpose. 

2. Make an impact "back" home:

NRIs work and live abroad, but they have intrinsic interests in solving challenges that 21st-century India is facing. Solving challenges like unplanned urbanization, pollution, water scarcity, access to renewable resources, and infrastructural bottlenecks are key to building collective prosperity. ESG funds can help non-resident Indians contribute to solving these issues proactively.

3. Diversify and manage portfolio risk:

"Governance" is a critical component of the ESG framework. It involves rules, processes, and practices that a company follows in controlling its business operations and management. Good governance assures a business is run in a fair, transparent, and responsible fashion for long-term resilience and sustainability. So, investing in ESG mutual funds and ETFs helps diversify portfolio risks associated with corporate scandals and poor management practices. 

4. Participate in India's growth story:

India is committed to achieving the Net-Zero target by 2070, and, for such a large country, it will require tremendous policy support and investments in green infrastructure and sustainable energy. These sectors are going to be the sunshine sectors in India for years to come. Investments in ESG funds will help leverage this trend effectively. 

Steps for NRIs to invest in ESG schemes

NRIs residing in any country can invest in Indian mutual funds using their NRE or NRO bank accounts. However, some country-specific variations exist, such as in the USA and Canada. They require their residents to report investments in foreign assets. It is commonly known as the Foreign Account Tax Compliance Act or FATCA. 

India has intergovernmental agreements with the US and Canada, and SEBI-registered asset management companies (AMCs) are required to be FATCA-compliant for receiving NRI investments from these countries. It is a costly procedure, and this is the reason many AMCs prefer not to accept NRI investment. 

Otherwise, investing in ESG funds requires a few simple steps. 

• Step 1 - Check AMCs that accept NRI investments (especially important for US and Canada-based NRIs). 

• Step 2 - Find out the best-performing ESG funds offered by those AMCs. 

• Step 3 - Complete KYC along with submission of PAN, Passport, and overseas address proof 

• Step 4 - For regular ESG funds, you can invest directly through AMCs or choose online platforms for purchasing mutual funds by making a payment from either your NRE or NRO account. For ESG ETFs, investors must buy them on stock exchanges through online brokers.   

Top performing ESG funds in India 

Investing in ESG funds does not require sacrificing return on investments. Top ESG funds have delivered over 15% annualized returns over a period of 5 years. For long-term investments, some of the top funds from AMCs accepting NRI investments are: 

• SBI ESG Exclusionary Strategy Fund

• ICICI Prudential ESG Exclusionary Strategy Fund

• Aditya Birla Sun Life ESG Integration Strategy Fund

• Axis ESG Integration Strategy Fund

Taxation and repatriation rules for NRI investors

Repatriation is conditional to the choice of bank account by NRI investors for transferring funds to AMCs. Investments through NRE accounts are fully repatriable, while the same through NRO accounts are subject to a maximum limit of USD 1 million in a financial year. 

The latest taxation rule on capital gains for NRI investing in ESG equity mutual fund: 

• Short-term capital gains tax is 20% (holding period less than 12 months)

• Long term capital gains tax is 12.5% for gains above Rs 1.25 lakh per financial year (holding period more than 12 months)

The latest TDS rates applicable are: 

FAQs

1. Does the International ESG Fund of Funds in India enjoy benefits of equity funds and LTCG at 12.5? 

No. They do not. LTCG at 12.5% is available only to those MF schemes that invest at least 35% of assets in Indian equity shares. International FoF do not invest in Indian equity. So, such funds are treated as debt funds and taxed at personal income tax slabs. 

2. Are long-term investments in India ESG funds vulnerable to rupee depreciation? 

Yes. They are vulnerable to unfavourable exchange rate movements, even when an NRI is investing from their NRE accounts. The reason is even NRE transfers are converted to rupees before investing in MFs. When investors liquidate their investments, similarly redemption is paid in rupees and then converted to NRIs’ currency of residence (say USD). In both the phases, investments are open to currency risks. 

3. Can I get voting rights to companies in which I have invested through an ESG fund? 

No. Investing in ESG funds offers just a share in the total valuation of the portfolio. MF investors do not have direct ownerships of the stocks in their ESG MF portfolio.