In recent years, there has been a constant rise in the demand for investments in renewable energy mutual funds in India. To serve this demand, several AMCs have come up with their mutual fund that solely targets stocks in the renewable resources sector. Popularly, these funds are also known as ESG thematic funds.
From 2020 to 2023, ESG funds have witnessed a growth of more than 50% in the AUM, driven by rising demand for these funds and the favorable market conditions post-COVID. After a significant boom, the first question that pops up among investors is “Is there any value left in ESG funds?”. Let’s dig up on the ESG prospect of India and delve into what the future holds for renewable energy mutual funds in India.
India’s Renewable Energy Mutual Funds Prospect
India’s renewable energy sector is rapidly expanding, with the country aiming to achieve 500 GW of renewable energy capacity by 2030. This ambitious target makes India one of the largest global markets for renewable investments. Mutual funds focused on this sector have delivered strong long-term performance, with some achieving returns of 12-15% annually over the past 3-5 years.
Currently, India is the third-largest producer of renewable energy globally, with nearly 40% of its total installed power capacity coming from renewables. In 2023, India added 10 GW of new capacity, primarily from solar and wind projects, further enhancing the appeal of renewable energy mutual funds. Global investors, including sovereign funds and private equity players, have shown increased interest, contributing over $75 billion to the sector since 2015.
Top Performing Renewable Energy Mutual Funds in India
ICICI Prudential ESG Exclusionary Strategy Fund
This fund primarily invests in companies that meet environmental, social, and governance (ESG) criteria, excluding those involved in harmful sectors such as tobacco or fossil fuels. It focuses on responsible investing while promoting sustainability and ethical practices.
SBI ESG Exclusionary Strategy Fund
SBI’s ESG fund applies an exclusionary strategy, avoiding investments in companies that have a negative impact on the environment or society. The fund prioritizes businesses with a strong commitment to ESG practices, offering a balance of ethical and sustainable growth.
Quantum ESG Best In Class Strategy Fund
This fund takes an “ESG best in class” approach, investing in companies with superior ESG performance within their sectors. It aims to deliver sustainable returns by choosing environmentally and socially responsible companies that are also financially strong.
Tata Resources & Energy Fund
Focused on the resources and energy sectors, this fund invests in companies involved in energy production, natural resources, and renewable energy mutual funds. It leverages India’s growing focus on renewable resources while providing exposure to traditional energy sources.
DSP Natural Resources and New Energy Fund
This fund invests in a combination of natural resources and emerging energy technologies like renewables. It offers diversification by blending traditional energy investments with newer, more sustainable options, catering to the evolving energy landscape.
SBI Energy Opportunities Fund
This fund focuses on energy sector investments, emphasizing opportunities in both traditional and renewable energy. It seeks to capitalize on India’s growing energy demands and the transition toward cleaner energy solutions.
| Fund Name | Category | AUM (Cr) | 1 yr Return | 3 yr Return | 5 yr Return |
| ICICI Prudential ESG Exclusionary Strategy Fund | Sectoral/Thematic | 1651 | 42.05% | 16.77% | – |
| SBI ESG Exclusionary Strategy Fund | Sectoral/Thematic | 6111.6 | 31.54% | 12.17% | 16.93% |
| Quantum ESG Best In Class Strategy Fund | Sectoral/Thematic | 94.6 | 29.26% | 11.91% | 18.64% |
| Tata Resources & Energy Fund | Sectoral/Thematic | 1062.56 | 35.13% | 14.16% | 24.44% |
| DSP Natural Resources and New Energy Fund | Sectoral/Thematic | 1335.59 | 46.34% | 19.03% | 24.16% |
| SBI Energy Opportunities Fund | Sectoral/Thematic | 11,717.96 | – | – | – |
Conclusion
While ESG and renewable energy mutual funds have delivered impressive returns over the past few years, they are not without risks. As the sector is still evolving, it may face fluctuations due to regulatory changes, technological advancements, and market dynamics. However, with India’s ambitious renewable energy mutual funds targets, growing global investment interest, and the country’s position as a key player in the renewable space, the scope for growth in this sector remains promising. For investors with a long-term horizon and a higher risk appetite, ESG thematic funds can offer both sustainable growth and strong returns as India transitions to a greener economy.
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