Should you invest in energy-sector mutual funds right now?

[{"selector":"#anim-c739af87e0b6d648b5629d6199acfdc5","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-3ed5ffda465933e5f6d22cfc2a809310","keyframes":{"transform":["translate3d(-104.48548%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}]

Soaring energy demand

[{"selector":"#anim-50ae42653abb434099b67adc397a0cae","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-d6b535dc1de35bedbc878cc40520685f","keyframes":{"transform":["translate3d(-104.48548%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] India's electricity consumption grew 15.23% annually since 1985, reaching 1255 kWh in 2022. This year's budget also pushed towards green hydrogen and solar projects.

A NFO launch

[{"selector":"#anim-9e6a010d179bc9ac20ac269cebb11fe6","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-31c2ee8fd7c93bfe84525c46c034c8ef","keyframes":{"transform":["translate3d(-104.48548%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] Post-budget, SBI MF launched the Energy Opportunities Fund. It raised Rs 6,547 crore in its NFO, becoming the third largest launch in diversified equity funds this century.

Should you invest in thematic funds honing in on a booming energy sector?

[{"selector":"#anim-3e8254d7c46df7412a32324f29fcdc9a","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-3ecbc821f65c6b8e614d1d3f6138b643","keyframes":{"transform":["translate3d(-104.48548%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] Let’s analyse and compare a few things first.

Performance of the Nifty Energy Index

[{"selector":"#anim-eced30cc99ee43ec3f02c251af3ff1bb","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-e58ec6f04dc12fbe23fd5ef4349fc5cf","keyframes":{"transform":["translate3d(-104.48548%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] Over the last five years, the Nifty Energy Index has consistently beaten the broader S&P BSE 500 index.

Performance of energy-sector funds

[{"selector":"#anim-4ca98eb33d75795d20de3f7294fe4f71","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-0f85c41e83486e70f1128c15bbde15df","keyframes":{"transform":["translate3d(-104.48548%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] Tata Resources & Energy, the best of the energy funds, outperformed the broader market 59% of the time. However, it showed less resilience during market downturns.

The risk of concentration

[{"selector":"#anim-c42de8f5babb3cb054b74ec6f62471bc","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-c7add3112adb5503634524e0dd2dd859","keyframes":{"transform":["translate3d(-104.48548%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] Thematic funds focus on specific sectors or themes, making them more volatile and risky. This can lead to underperformance when the sector is in a slump.

What should you do?

[{"selector":"#anim-32e7f38262ec9c335d4b8aebe580fcba","keyframes":{"opacity":[0,1]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] [{"selector":"#anim-05ed7d3286b0ee1025be64532d092225","keyframes":{"transform":["translate3d(-104.48548%, 0px, 0)","translate3d(0px, 0px, 0)"]},"delay":0,"duration":600,"easing":"cubic-bezier(0.2, 0.6, 0.0, 1)","fill":"both"}] Read our complete take on energy funds in our latest article. Check the link below.