Can You Invest in Green Energy with Mutual Funds India?

The answer to the titled question is ‘Yes’, you can invest in green energy through mutual funds India. 

Over the past decade, India has made significant strides toward adopting renewable energy sources, with a shift from conventional fossil fuels to cleaner and more sustainable alternatives. This shift is part of the country’s broader goal to reduce carbon emissions, meet climate targets, and ensure energy security.

 

 

Shift of the Energy Sector Towards Green Energy

 

The global shift toward renewable energy has been gaining momentum as countries strive to address climate change. In India, the government has set ambitious targets to increase the share of renewable energy in the national energy mix. India’s energy sector is undergoing a major transformation, with significant investments in solar, wind, hydro, and biomass energy. The push towards green energy is also driven by the need to reduce dependence on coal and other polluting fossil fuels, which contribute to environmental degradation and health problems.

 

Government of India’s Initiatives

 

1. National Action Plan on Climate Change (NAPCC)

The Indian government launched the NAPCC to promote sustainable development and climate resilience by enhancing energy efficiency and increasing the share of renewable energy sources.

 

2. Renewable Energy Targets

India has set a target of achieving 500 GW of non-fossil fuel-based capacity by 2030 and has already surpassed its previous target of 175 GW of renewable energy capacity, with solar and wind energy being the key contributors.

 

3. International Solar Alliance (ISA)

India has been a strong advocate for global efforts to accelerate the deployment of solar energy. India’s ISA, aims to bring together solar-rich countries to enhance collaboration on solar energy research and deployment.

 

4. Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME)

The government also incentivizes the adoption of electric vehicles (EVs) through initiatives like FAME, to reduce carbon footprint of transportation.

 

5. Pradhan Mantri Ujjwala Yojana

It aims to provide clean cooking fuel (LPG) to households, replacing traditional biomass-based cooking, which is harmful to both health and the environment.

 

Mutual Funds Investing in Green Energy

 

Several mutual funds in India have recognized the growing importance of sustainable and green investments focussing on sectors like renewable energy, electric vehicles, and clean technologies. While mutual funds in India don’t always focus exclusively on “green energy,” there are Environmental, Social, and Governance (ESG) focused funds, which invests in companies with sustainable practices, including renewable energy companies. Some of them are:

 

Top 10 ESG Mutual Funds with 1-year Return

 

S. No.	Name of the Fund	1 Yr return (%)	TER (%)	Fund House
1	ICICI Prudential ESG Exclusionary Strategy Growth	24.1	1.01	ICICI Prudential Mutual Fund
2	Aditya Birla Sun Life ESG Integration Strategy Growth Direct Plan	23.09	1.4	Aditya Birla Capital Mutual Fund
3	Invesco India ESG Integration Strategy Growth Direc	22.65	0.97	Invesco Mutual Fund
4	Quant ESG Equity Growth Direct Plan	19.03	0.79	Quant Multi Asset Multi Manager
5	Axis ESG Integration Strategy Growth Direct Plan	18.73	1.3	Axis Mutual Fund
6	Quantum ESG Best In Class Strategy Growth Direct	16.64	0.85	Quantum Mutual Fund
7	Kotak ESG Exclusionary Strategy Growth Direct Plan	14.15	0.81	Kotak Mahindra Mutual Fund
8	SBI ESG Exclusionary Strategy Growth Direct Plan	13.81	1.31	SBI Mutual Fund
9	Mirae Asset ESG Sector Leaders FoF Growth Direct Plan	11.73	0.46	Mirae Asset Mutual Fund
10	Whiteoak Capital ESG Best In Class Strategy Growth Direct Plan	NA	0.59	Whiteoak Capital Mutual Fund

Source: Kuvera; December 31, 2024.

 

The above listed Top 10 ESG Mutual Funds in 2024, showcase various strategies focused on sustainable investing, with a primary emphasis on environmental, social, and governance (ESG) factors. These funds include:

1. Exclusionary Strategy: Funds like ICICI Prudential, Kotak and SBI exclude companies that fail to meet ESG criteria, focusing on ethical investments.
2. ESG Integration Strategy: Aditya Birla, Invesco and Axis integrate ESG factors into the investment decision-making process.
3. Best-in-Class Strategy: Quantum and Whiteoak invest in companies that excel in ESG practices within their industries.

 

Key Insights of These Funds

 

• Performance: The top performers, such as ICICI Prudential and Aditya Birla Sun Life, have delivered strong 1-year returns of over 23%.
• Cost: TER (Total Expense Ratio) varies, with funds like Mirae Asset and Kotak offering lower TERs, making them more cost-efficient.
• Fund House: Established fund houses like ICICI Prudential and SBI lead the space with a variety of ESG strategies.

 

The benefits of ESG Funds from a Green Energy perspective are described as following:

ESG funds that focus on green energy offer a significant opportunity to support the global transition towards sustainable energy. By investing in companies that prioritize environmental responsibility, such as those in the renewable energy sector, these funds help reduce carbon emissions and combat climate change. They provide exposure to cutting-edge technologies in solar, wind, and electric vehicles, industries that are poised for long-term growth due to increasing demand for clean energy. Additionally, these funds often screen out companies with poor environmental practices, ensuring investments are aligned with green energy goals. ESG funds typically focus on companies with robust sustainability practices, enhancing their long-term stability and attractiveness as ethical investments.

 

However, when investing in ESG funds, it’s crucial to evaluate the fund’s specific ESG criteria to ensure they align with your values, as different funds may prioritize varying aspects of sustainability. The performance of ESG funds can be influenced by both market trends and regulatory changes, so investors should assess the fund’s risk profile and how it might react to policy shifts in green energy. It’s also important to consider the TER, as higher management fees can reduce the overall returns, especially in the long term. While ESG funds may have strong growth potential, they can also be subject to volatility due to changes in market sentiment around sustainability and green energy. Additionally, investors should ensure the fund has a proven track record and transparency in its reporting on ESG factors to make informed decisions. 

 

 

Wrapping Up

 

The Indian government’s push for green energy and the increasing focus on clean technologies have created a growing opportunity for green energy investments. ESG funds, especially those targeting green energy, are gaining popularity as they allow investors to align financial goals with environmental sustainability and long-term growth. By supporting renewable energy and companies with strong ESG practices, investors contribute to a more sustainable future. As John F. Kennedy aptly said, “the time to repair the roof is when the sun is shining,” emphasizing that now is the ideal time to invest in green energy and embrace sustainability.

 

 

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