Is this the right time to invest in energy-sector mutual funds?

India is a fast-growing economy. Its energy needs are rapidly soaring. Our per capita electricity consumption has grown 15.23 per cent annually from 1985, reaching 1,255 kWh in 2022. So has our energy capacity, growing from 367.28 GW in December 2019 to 427.58 GW as of February 2024. This makes India the third-largest producer and consumer of electricity globally. In light of this growing demand, this year's budget highlighted the government's push towards renewables, allocating Rs 600 crore to the National Green Hydrogen Mission and Rs 10,000 crore to solar projects. Interestingly, just a few days after the budget announcement, SBI Mutual Fund launched its SBI Energy Opportunities Fund . This thematic fund collected a whopping Rs 6,547 crore during its NFO period. In the actively managed diversified equity funds space, it became the third-largest fund launch of this century after ICICI Flexi Cap and SBI Multicap . So, does it make sense to invest in thematic funds focused on energy? Before we decide, let's examine how the energy index and energy-sector mutual funds have performed. Performance of the Nifty Energy Index Over the last five years, the Nifty Energy Index has consistently beaten the broader S&P BSE 500 TRI. The Russia-Ukraine conflict that started in February 2022 further emphasised the need for energy security, spurring demand for domestic renewable and non-fossil fuels. Performance of energy-sector funds There are only a handful of thematic funds focused on energy. Besides SBI's Energy Opportunities Fund, there are DSP Natural Resources and New Energy , Nippon India Power & Infra and Tata Resources & Energy funds. Among them, Tata Resources & Energy has shown impressive performance against its peers over a three-year horizon. It outperformed both the energy sector and the broader market index 59 per cent of the time. Performance of energy-sector mutual funds For reference: Top flexi-cap funds outperformed the energy sector and the broader market index 71 per cent of the time. Fund name Launch date Outperformance (% of times)