Energy, power-based equity mutual funds deliver up to 10% in one month. Should you invest?

Energy & power based mutual funds gave an average return of 8.39% in the last one month, data crunching by ETMutualFunds showed. There were around four schemes in this category that have completed one month or existence in the market.

DSP Natural Res & New Energy Fund, the topper in the category, gave 10.26% return in the last one month. Tata Resources & Energy Fund gave 8.45% in the said period.

SBI Energy Opportunities Fund, the largest scheme in the category based on assets managed, gave 7.66% in the said period. Nippon India Power & Infra Fund, the oldest scheme in the category, gave 7.19% return in the same period.

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What major events happened in the energy sector that led to this performance by these sectoral funds?

“Several factors have contributed to the strong performance of energy sector funds. One key driver is the focus on the power sector, solar energy, and renewables outlined in the BJP’s manifesto. Additionally, recent events in the oil and gas market, particularly rising prices, have boosted the sector’s overall performance,” said Abhishek Jain, Head of Research, Arihant Capital.

In the last six months, these schemes gave an average return of 29.36%. DSP Natural Res & New Energy Fund gave the highest return of around 31.31% in the last six months. In the last one year, these schemes gave 56.07% return. In the last three years, these schemes gave 27.44% return.

Do these schemes or the energy sector has the potential to offer superior results over a long period of time? “The energy sector has the potential to outperform the broader market over a long period. Rising power demand, coupled with the continued focus on renewable energy, suggests a positive long-term outlook. Multiple factors are currently driving the sector’s growth,” said Jain.

These schemes are benchmarked against S&P BSE Oil & Gas Index, Nifty Commodities – TRI, Nifty Energy- TRI, and Nifty Infrastructure – TRI. These benchmarks gave 6.21%, 7.24%, 5.67%, and 4.24% returns respectively in the same period.

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Want to invest in these schemes? What precautions to take if investing in this sector based mutual funds? “When investing in sector-specific mutual funds like those focused on energy, it’s crucial to consider the fund manager’s track record. Additionally, diversification within the sector across both power and oil & gas is recommended for a well-rounded portfolio,” recommends Abhishek.

He also adds, “For existing investors in energy sector funds, consider a staggered investment approach (adding in tranches) following the recent rally. While there’s a chance these sectors will continue performing well, especially leading up to elections, a cautious approach is advisable. New entrants should also consider a phased investment strategy.”

Note, all regular and growth option schemes were considered for the study. We calculated a one month return from March 2024 to April 2024.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)


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