"Investing in India's Energy Future: Exploring Thematic-Energy Mutual Funds"

India ranks as the third largest energy-consuming nation globally, highlighting the pressing need to generate affordable, reliable, and eco-friendly energy to cater to the growing population's demands. The country's future economic development hinges on achieving sustainable energy goals, which require robust policy measures, technological advancements, and increased investment in the energy sector.

As India's economy continues to thrive, experts predict a surge in energy demand, which could increase 20-fold over the next few decades. This heightened demand is driven by rapid industrialization and urbanization, and the country must generate a capacity of 405 gigawatts of renewable energy by 2030 to meet this demand. On this note, we have brought you an investment opportunity in the Energy sector theme.

Thematic-Energy Mutual Fund

A Thematic-Energy Mutual Fund is a type of equity mutual fund that focuses on investing in stocks associated with a specific theme related to the energy sector. These funds are broader in scope compared to sectoral funds, as they target companies and sectors that are united by a common idea or theme. For example, an infrastructure-themed fund may invest in sectors such as cement, power, and steel, among others, that are connected to the broader energy theme.

There are several advantages to investing in Thematic-Energy Funds. Firstly, the focused approach of investing in select sectors allows for potential higher returns if the chosen theme plays out positively in the market. However, it's important to note that this can also increase the risk associated with these funds, as returns are closely tied to the performance of the chosen theme.

Thematic-Energy Funds are typically suitable for aggressive investors who are willing to take on higher risks in pursuit of potentially higher returns. However, it's important to manage the exposure to such funds carefully, and it's generally recommended to limit the allocation to Thematic-Energy Funds to not more than 10% of the overall investment portfolio to maintain diversification and manage risk effectively.

Mutual fund in Energy sectors:-

In the Below picture, we have shown you an analysis of the returns of two energy-sector mutual funds with the index fund.

1.Tata Resources & Energy Fund

Tata Resources & Energy Fund is a thematic-energy mutual fund scheme from Tata Mutual Fund that invests in equity/equity-related instruments of companies in the resources and energy sectors in India.

The fund seeks long-term capital appreciation by investing in sectors such as cement, energy, metals, chemicals, fertilisers and paper. The fund has been in existence for 7 years and 4 months, having been launched on 04/12/2015. The fund has ₹242 Crores worth of assets under management (AUM) as of 31/03/2023 and is a medium-sized fund of its category.

The top five stock holdings of the fund are Reliance Industries Ltd., Ultratech Cement Ltd., Ambuja Cements Ltd., National Thermal Power Corporation Ltd., and SRF Ltd., which together account for 29.11% of the total holdings.

2. DSP Natural Resources And New Energy Fund

DSP Energy Mutual Fund is a thematic-energy mutual fund scheme from DSP Mutual Fund that invests in equity/equity related instruments of companies in the natural resources and new energy sectors in India and abroad. The fund seeks long term capital appreciation by investing in sectors such as oil and gas, metals and mining, renewable energy, utilities and infrastructure.

The fund has been in existence for 10 years 3 month, having been launched on 01/01/2013. It has ₹677.32 Crores worth of assets under management (AUM) as of 31/03/2023 and is a medium-sized fund of its category.

The top five holdings of the fund are BlackRock Global Funds - Sustainable Energy Fund, Hindalco Industries Limited, Jindal Steel & Power Limited, Tata Steel Limited, and Reliance Industries Limited, which together account for 36.72% of the total holdings.

Conclusion

In conclusion, with India's growing energy demands and the need for sustainable energy solutions, Thematic-Energy Mutual Funds offer an investment opportunity that aligns with the country's future economic development goals.

Two examples of such funds are Tata Resources & Energy Fund and DSP Natural Resources and New Energy Fund, which have shown promising performance compared to the Nifty 50 Index in recent years.

Below we have compared above two mutual fund's NAV curves with the Nifty 50 Index fund using Zerodha Coin compare feature.

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