Kotak Energy Opportunities NFO review: Interesting option?

Kotak Energy Opportunities Fund is the latest in a small but growing category of energy-focused mutual funds. With this launch, there are now six active funds following the energy theme. Notably, four of them — from SBI , ICICI Prudential , Baroda BNP and now Kotak — were launched over the last one year, give or take a month or two.

The Kotak Energy Opportunities NFO is open until April 17, 2025, and here are some details at a glance:

A quick look at the category

Besides the energy-focused funds from SBI, ICICI and Baroda BNP, existing players include funds from DSP Mutual Fund and Tata Mutual Fund . These funds are collectively managing over Rs 20,000 crore worth of investors' money, with the major chunk of it being managed by SBI Energy Opportunities (Rs 8,864 crore) and ICICI Prudential Energy Opportunities (Rs 9,188 crore).

These funds typically invest in companies engaged in oil & gas, power generation, transmission, renewables and, increasingly, clean energy and infrastructure enablers like EVs and data centres.

The sudden spurt of launches raises a natural question: "Why now?"

According to Kotak's fund literature, here are a few reasons:

• India is the fastest-growing energy consumer globally, with exponential future demand.
  
• Electro-intensive industries (EVs, data centres, railways, hydrogen, mining) are driving electricity demand. EVs and data centres alone may contribute 16 per cent of incremental power demand by 2030.
  
• Power generation can have exponential growth. India's installed power capacity is projected to double from 443 GW (2024) to 879 GW by 2035. Renewables are expected to account for 90% of the growth.

Given the same, the fund aims to tap into this megatrend by investing in companies across the energy spectrum — from exploration to consumption.

How has Energy sector performed?

While the history of funds in the category is limited, we looked at the performance of the Nifty Energy TRI, a sectoral index tracking energy companies listed on the NSE.

Based on a five-year rolling return analysis, it has outperformed the broader Nifty 500 TRI around 63 per cent of the time in the last decade. Interestingly, its five-year returns over the last five years have almost always remained ahead of the Nifty 500 TRI.

However, the returns are more volatile, with sharper drawdowns and recoveries. This is also reflected in its annual performance over the past decade. The pattern highlights the cyclical and high-risk, high-reward nature of the energy sector, making energy funds a risky proposition for those seeking steady compounding. Investors should be prepared for intermittent underperformance between rallies.

Who's managing the fund?

The fund will be co-managed by Harsha Upadhyaya and Mandar Pawar.

Harsha Upadhyaya is a seasoned and widely known equity fund manager, recognised for his bottom-up stock-picking approach. His flagship schemes include Kotak Equity Opportunities Fund , Kotak Tax Saver (ELSS) Fund and Kotak Flexicap .

Abhishek Bisen will oversee the debt allocation. But this being an equity fund, he is likely to have a very limited role.

What about duplication with existing funds?

An internal analysis shows that most existing energy funds have less than 9 per cent common holdings with their flexi-cap counterparts. This suggests that an energy-specific fund like Kotak's may indeed offer distinct exposure.

But there's a nuance here. While the stock-level overlap may be low, around half of all flexi-cap funds already count energy among their top five sectoral bets. So chances are, you're not missing out on energy if you're invested in a diversified fund such as a flexi-cap fund .

Should you invest?

Even if you're not investing in an energy-specific fund, you're likely already getting some exposure to the sector through your diversified equity funds. On the flip side, thematic funds like this come with concentration risks and are prone to sharper ups and downs.

That said, if you have a strong conviction in the long-term potential of India's energy transformation and are comfortable with the volatility that comes with it, you can consider allocating a small portion of your portfolio (5-10 per cent) to such a fund.

Also read: Ask these three questions before investing in an NFO