Best mutual funds for Power & Renewable Energy Sector in 2024
The Power and Renewable Energy sector has shown tremendous growth in the last year, with some stocks like Waaree Renewable giving an 800% return, Inox Wind Energy offering a 500% return, SJVN providing a 360% return, and Adani Power giving a 226% return. With the government of every country making this sector a priority, India has also focused on it in its budget for 2024. In today's blog, we will do a deep analysis of this sector, covering all investment opportunities, including how you can make good money using Mutual Funds. If someone wants to invest Rs 10000 in this sector, which mutual funds schemes are best for good returns? Let's begin the analysis.
Why Renewable Energy is Trending?
First of all, let us simplify renewable energy, basically, it is derived from natural sources like the sun, wind, hydro, and biomass. So by using these sources of energy, we can power any mechanical or electrical thing. These sources are in nature which never ends and are also safe for the environment.
Due to years of use of non-renewable energy in the world, environmental issues are becoming increasingly worse like global warming and climate change.
Some scientists also say that if we do not reduce our current carbon emissions, the world's average temperature may worsen by more than 4 degrees by 2100. Which will put normal life and the ecosystem in danger.
Thus, top countries like the USA, China, Germany, and Japan are moving rapidly towards sustainability by adopting renewable energy sources. India, which benefits geopolitically from its low demand for petrol and oil imports, is also moving swiftly towards renewable energy.
Apart from this, as digitization is getting worse, we have started using electronic items more. Even transportation is now shifting to electric vehicles. So with this increase, the consumption of power will also increase which is why we need more sustainable energy sources.
Like India's power generation has grown by 8.7% in FY 23 which is the biggest growth in the last 30 years. By 2030, our power consumption will increase from 428 GW to 817 GW, in which the contribution of renewable energy will be more than 50%. 500 GW by 2030. The current renewable energy capacity is only 168 GW.
Therefore, due to these factors, it has become a trending sector and shows scope for many investment opportunities in the long term.
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Top Mutual Funds that Invest in Power & Renewable Energy Sector
To achieve your goal, the first step is to find a fund that invests in companies related to the power and renewable sectors. We have identified some high-quality funds based on four parameters. Firstly, we have selected funds whose current portfolio has the highest allocation in the power and energy sector. Secondly, we have considered funds with a consistent and qualitative portfolio performance. Thirdly, we have taken into account the investing philosophy of the fund. Lastly, we have ensured that the fund is actively managed by experienced fund managers.
1. The SBI Energy Opportunities Fund is the first fund built solely on the theme of power and new energy. Although the information about this fund is still pending, it has been selected for two reasons. Firstly, it is the only fund dedicated solely to this theme. Secondly, SBI AMC has a good track record of managing sector and theme funds. As per the available information, this fund will invest in five sectors related to Power and Energy, including low-value chain stocks such as - Oil Value Chain - Exploration, Refinery, Chemicals, and Equipment. Gas Value Chain - City Gas Distribution, LNG Terminals. Power value chain - Coal, Power Generation, Transmission. Power Ancillaries Value Chain - Energy EPC, heavy electrical equipment, and Green Energy value chain like solar, wind, hydrogen, and batteries.
2. The Nippon India Power & Infra Fund is a mixed portfolio of infrastructure with power and energy. As the government has been investing heavily in infrastructure in the last three budgets, all infra-related stocks are performing well, making this fund an attractive investment opportunity. Approximately 47% of this fund's portfolio is invested in companies in the energy and capital goods sectors. It has generated a 72% return in the last year and is the top-performing fund in the infrastructure category.
3. The ICICI Prudential PSU Equity Fund is a mix of PSU stocks with power and energy. As most power companies are PSU companies, this fund is an excellent choice for investors who want to benefit from both power PSU and other PSU companies. Almost 46% of this fund's portfolio is invested only in the energy sector, which has given explosive returns in the last year. This fund has generated returns of up to 85% in the last year.
4. The Tata Resources & Energy Fund is a portfolio mix of natural resources companies with power and energy. The allocation of the energy sector in this fund is up to 29%, materials will be 26%, metal & mining 18%, and most importantly, the chemical sector, which is currently an undervalued and highly growing sector, is 15%. As a result, investors can benefit from energy and other resource companies' growth. This fund has generated returns of up to 41% in the last year.
Portfolio of 10000 in the Power & Energy Sector
Let's say you want to invest 10-20% of your portfolio in a particular theme. To do this, you would need to invest a certain amount of money, let's call it 10000. But how can you best allocate this investment across various funds?
The first thing to consider is to allocate a major portion of the investment in the theme fund itself. For instance, you could invest Rs. 4000 or 40% of your investment in the SBI Energy Opportunities Fund. This will give you a good exposure to the theme.
Another big theme to consider is infrastructure, which has a promising long-term growth story. Investing Rs. 3000 or 30% in the Nippon India Power & Infra Fund can help you take advantage of this trend.
Finally, you can invest the remaining 15% or Rs. 1500 each in the ICICI Pru PSU Equity Fund and the Tata Resources & Energy Fund. This will help you diversify your money productively in related sectors.
By following this approach, you can create a comprehensive portfolio that allows you to fully take advantage of the growing theme while also managing risk through diversification.
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Who Should Invest in and Risk Factors of Power and Energy Sector
It's important to note that investing in this strategy comes with risks. The first investment has a higher risk than the second, so it's important to do thorough research and plan your entry and exit points carefully before investing.
This theme has shown a long growth story and is still in its early stages, but it may undergo correction during a market fall. Therefore, only high-risk taker investors should consider this investment. If you have proper financial planning and a financial backup, you can tolerate negative returns during tough times without redeeming the investment. This will increase your chances of success and generate high returns quickly.
To sum up, we've analyzed an exciting growing theme, top funds, and given an example of how to build Rs.10000 portfolio on this theme.
Conclusion
In conclusion, there is a lot of room for development and risk when investing in the power and renewable energy sectors. It is important to be aware of these dangers and to invest only when you can handle market volatility. To reduce volatility, think about implementing a Systematic Investment Plan (SIP). Exposure to this industry is offered by mutual funds such as Tata Resources & Energy Fund, ICICI Prudential PSU Equity Fund, Nippon India Power & Infra Fund, and SBI Energy Opportunities Fund. By spreading your investments among different funds, you may minimize risk and take advantage of expansion prospects. For investors seeking long-term gains and willing to take on significant risk, the industry offers interesting opportunities overall.
Best Funds
| Top funds | 1M Return | 6M Return | 1Y Return | 3Y Return | 5Y Return |
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|---|---|---|---|---|---|---|---|
| ICICI Prudential Multi-Asset Fund - Growth | 1.75% | 14.44% | 31.28% | 23.26% | 22.34% | Invest | |
| SBI Magnum Midcap Fund - Regular Plan - Growth | 2% | 20.82% | 39.04% | 24.38% | 29.73% | Invest | |
| HDFC Top 100 Fund - Growth Option - Regular Plan | 1.61% | 15.94% | 38.14% | 21.82% | 20.19% | Invest | |
| HDFC Balanced Advantage Fund - Growth Plan | 0.8% | 14.14% | 37.88% | 25.15% | 22.04% | Invest | |
| Parag Parikh Flexi Cap Fund Regular-Growth | 0.42% | 16.62% | 41% | 22.29% | 22.97% | Invest |