Sector - Energy Mutual Funds

Energy is one of the leading sectors that contributes to the global economy. Due to increased demand for oil, gas, renewable energy, and power, there could be room for investments within the energy sector. Energy Mutual Funds enable individual investors to invest in the sector by participating in various companies having businesses in the energy sector.

What are Energy Mutual Funds?

Energy Mutual Funds are thematic mutual funds which invest primarily in companies that are engaged in the energy sector. These funds make investment in the companies engaged in the exploration of oil and gas, electricity production, renewable energy, among others.

As opposed to directly investing in individual energy firms, investors can acquire units of the energy mutual fund, giving them access to many companies under one umbrella. The mutual fund is run by professional fund managers who make investment decisions based on market trends.

Features of Energy Mutual Funds

• Sector Focused Investment: Energy Mutual Funds are designed for investing in firms from the energy sector, thereby allowing the investors to invest in such an industry.
• Professional Management: Experienced funds managers are involved in taking decisions regarding investment, carrying out research of companies, and managing the portfolio for the benefit of the investors.
• Sector Diversification: These funds invest in many energy companies, which minimises risks of dependence on one firm only.
• Growth Prospects: Growing demand for energy and development of renewable energy can provide good growth prospects for the energy companies.

How to Invest in Energy Mutual Funds?

You can invest in energy mutual funds by following simple process:

Step 1: Choose investment mode. You can invest through:

• AMC websites
• Online investment platforms provided by stockbrokers
• Mutual fund distributors

Step 2: Choose a suitable energy mutual fund.

Step 3: Choose between Systematic Investment Plan (SIP) and Lump sum based on your goal and make investment.

Step 4: Make payment through UPI, netbanking or other available methods.

Why to Invest in Energy Mutual Funds?

• Exposure to an Emerging Sector: Energy is one of the key elements of economic development. Investment into energy funds enables investors to take part in the expansion of the sector.
• Diversification: Energy mutual funds offer investors the chance to invest in more than one company at once and thereby reduce risks that are associated with investments into a single company.
• Opportunities from Energy Transition: The energy transition of the world economy towards more sustainable energy sources may bring new opportunities for businesses in the renewable energy segment.
• Wealth Creation: Energy funds may be used by investors who are willing to take high risks and have a long-term vision of their investments.

Taxation Rules for Energy Mutual Funds

Energy mutual funds fall into the category of equity-oriented mutual funds as they invest in energy stocks. Hence, energy mutual funds are subject to the laws for equity mutual fund taxation.

• Short-Term Capital Gains (STCG): If units are sold within 12 months from the date of purchase, the profits will be considered STCG, which shall be taxed at 20%, with applicable surcharge and cess.
• Long-Term Capital Gains (LTCG): Profits made from selling units after 12 months will be considered LTCG. Profits made from these funds beyond ₹1.25 lakh in a fiscal year will be taxed at 12.5%, whereas LTCG up to ₹1.25 lakh is tax-exempt.