Your child must be in their toddlerhood today. By the time they’re 18, the world they step into will look nothing like the one we’re investing in right now.
Electric vehicles will be normal. Solar power won’t be an alternative anymore. And the uncomfortable question parents rarely ask themselves is this…Are my investments aligned with the future my child will actually live in?
Most parents invest for education using the same playbook their parents followed which is fixed deposits, generic equity funds, maybe a large-cap SIP if they’re feeling bold. It feels safe, familiar, and responsible. But here’s the thing. Traditional energy companies are facing structural disruption. And India is quietly rewriting its energy story from fossil fuels to renewables, solar, wind, EVs, and green infrastructure.
That shift isn’t just good for the planet. It’s reshaping where long-term money may flow. This is where clean energy mutual funds enter the conversation.
Not as a trendy add-on. Not as a quick-return idea. But as a way for long-term investors and parents to participate in India’s transition to a cleaner, more sustainable economy while building wealth for future goals.
In this guide, we’ll break down everything you need to know about clean energy mutual funds in India. What they are, how they work, the risks, where they fit in a child’s education plan, and how to think about them without falling for hype.
What Are Clean Energy Mutual Funds?
Equity funds that invest typically more than 80% in companies working on renewable energy, sustainability, or green technologies are called Clean Energy Mutual Funds. This includes solar, wind, hydro, batteries, EVs, hydrogen, etc. These are also called green energy, renewable energy, or ESG clean energy funds.
These funds fall under AMFI’s (Association of Mutual Funds in India) Energy & Power category or as thematic funds. Unlike broad sectoral funds that include all energy companies, green energy funds focus on environmentally sustainable energy sources.
Are Clean Energy Funds and Traditional Energy Funds The Same
The key difference is traditional energy funds invest in fossil fuel and utility companies like oil, gas, coal and power while clean energy funds invest mostly in renewable and future energy firms.
Why Clean Energy Is An Opportunity in India
Rapid growth: India’s non-fossil power capacity is booming at around ~254 gigawatts by late 2025 which is 51.5% of total power capacity
renewablesnow.com
Solar capacity jumped from ~2.8 gigawatt in 2014 to ~129.9 gigawatt in 2025, and wind from 21 gigawatt to 53.6 gigawatt.
Govt targets: India has committed to 500 gigawatt renewable capacity by 2030 and zero emissions by 2070. Notably, India reached 50% non-fossil capacity five years ahead of its 2030 target. These mandates suggest sustained policy support and growth potential.
Government incentives: The Indian government offers subsidies for solar panels, launched the PM-KUSUM scheme for farmers, and is building green energy corridors to integrate renewables. These initiatives lower costs and boost demand for clean energy companies.
Energy security: Reducing reliance on imported fossil fuels like oil and gas is a national priority. Investments in domestic renewables will help secure energy supply and offer economic benefits.
High-growth segments: Green energy funds give exposure to sectors expanding fast. In 2025 alone, India added ~35 gigawatt solar and ~5.8 gigawatt wind. Investors ride this growth trend through funds.
Diversification benefits: Adding clean energy funds can diversify your portfolio. They often behave differently than financial or IT sectors and include both established utilities and emerging tech like solar, wind, and green hydrogen.
Types of Clean Energy Mutual Funds
Energy Sector Sectoral Funds
Broad energy & power funds include oil, gas, utilities, mining, and also some renewables. They may invest in coal, crude oil companies and wind or solar firms.
For example: SBI Energy Opp invests in exploration, production of traditional & new energy including oil & gas, utilities and power.
SBI Energy Opportunities Fund (SBI MF), ICICI Prudential Energy Opportunities, Baroda BNP Paribas Energy Opp. These are classified as Sectoral Energy & Power funds.
Thematic Green New Energy Funds
Thematic funds labeled New Energy, Natural Resources & New Energy, etc., blend traditional resource stocks like metals, oil and infrastructure with a focus on renewables.
DSP Natural Resources & New Energy Fund, Tata Resources & Energy Fund. These funds’ holdings illustrate the mix for e.g. DSP NR&NE’s top stocks include a global renewable fund (15%), metals (Tata Steel, Hindalco), coal (Coal India 9%). They diversify across energy, mining, and emerging green tech.
Exchange-Traded Funds (ETFs) and Overseas FoFs
India has launched a few energy ETFs. For example, Motilal Oswal Nifty Energy ETF that tracks Nifty Energy Index. A Nifty Clean Energy Index was created recently with 30 companies and funds tracking it may emerge. ETFs offer a low-cost, passive route if available.
Best Clean Energy Mutual Funds in India in 2026
| Fund Name | AMC | AUM (in crores) |
| SBI Energy Opportunities Fund | SBI Mutual Fund | ~9,209.8* |
| ICICI Prudential Energy Opportunities Fund | ICICI Prudential MF | ~10,120–10,186* |
| Nippon India Power & Infra Fund | Nippon India MF | ~7,376.9* |
| DSP Natural Resources & New Energy Fund | DSP Mutual Fund | ~1,467.2* |
| Tata Resources & Energy Fund | Tata MF | ~1,198.1* |
| Baroda BNP Paribas Energy Opportunities Fund | Baroda BNP MF | ~725* |
| Kotak Energy Opportunities Fund | Kotak MF | ~241* |
| DSP Global Clean Energy Fund of Funds | DSP MF | ~88* |
How to Evaluate Clean Energy Mutual Funds Before Investing
If you’re going to invest in a theme as powerful and volatile as clean energy, how you choose the fund matters more than which fund you choose.
Here’s a practical way to evaluate clean energy mutual funds without getting lost in jargon or chasing headlines.
Fund Type
Start by understanding what kind of fund it actually is.
Some funds are:
- Pure energy sector funds that include oil, gas, power and renewables
- Thematic new energy funds which are renewables or related infra
- ESG funds with partial clean energy exposure
What this really means is that two funds with energy in the name can behave very differently. Always check the category and mandate before assuming it’s a clean energy play.
AUM Size
Assets Under Management tells you how much investor money the fund handles.
- Very small AUMs can mean higher volatility and liquidity risk
- Very large AUMs may move slower but are usually more stable
There’s no perfect number, but for parents, extremely tiny funds are worth double checking.
Expense Ratio
Clean energy funds often cost more to run.
That’s fine. But over long periods, high expense ratios quietly eat into compounding.
A difference of even 0.5% may not feel like much today, but over 15–20 years, it adds up meaningfully. This is especially relevant if you’re running long-term SIPs for your child.
Portfolio Concentration
This is one of the most ignored metrics.
Check:
- How much of the portfolio is in the top 5 to 10 stocks
- Whether the fund is overly dependent on one sub-sector like solar or power utilities
Top Holdings Exposure
Go beyond fund names. Look at the companies the funds are invested in.
Ask yourself:
- Are these businesses profitable or still dependent on subsidies?
- Are they project heavy, debt heavy, or asset light?
This gives you a clearer picture of where your risk actually sits.
Best Strategy to Invest in Clean Energy Mutual Funds
SIP vs Lump-sum
- Use SIP: Given the volatility of energy stocks, a Systematic Investment Plan (SIP) helps with rupee-cost averaging. For long-term goals above 10+ years for a child, SIP reduces timing risk
- Time horizon: Clean energy funds suit long horizons for 5–10+ years. Kotak Securities advises checking a fund’s 5–8 year performance before investing
Diversification & Allocation
- Don’t over-concentrate: Experts typically recommend limiting sector funds to a small portion around 5–10% of an equity portfolio to control and manage risk. These are high-risk, high-volatility funds
- Combine with core funds: Parents should hold core diversified large-cap or balanced funds too and use energy funds as a small thematic tilt
Selecting Funds
- Fund objectives: Read the Scheme Information Document for updates and detailed information of their fund
- Performance: Compare trailing returns of the last 3-5 year CAGR to peers
- Fund size and style: Very small funds may be illiquid. But large AUM like SBI’s ₹9209 Cr suggests greater stability but check fund management quality too
How Much Should You Allocate to Clean Energy Mutual Funds?
This is the question parents care about the most. And rightly so. Clean energy mutual funds are powerful, but they are not meant to be your entire portfolio.
Ideal Allocation Based on Goal and Time Horizon
For 5–7 Year
Goals – Early college planning or partial education funding
- Allocation range: 5 to 10% of equity portfolio
- Why: Shorter time horizon means less room for sector cycles
- Focus should still be on diversified equity or hybrid funds
Clean energy here works as a growth booster, not the foundation.
For 10+ Year Goals
Goals: Full undergraduate or postgraduate education planning
- Allocation range: 10 to 20% of equity portfolio
- Longer time horizon allows you to ride policy shifts, tech adoption, and sector cycles
- SIPs work especially well here
What this really means is… time is your biggest risk reducer.
How Clean Energy Funds Can Help in Education Planning
- Long-term match: Investing for a child’s higher education typically 10–15 years aligns with the multi-decade growth trend in renewables
A parent starts a ₹5,000/month SIP in SBI Energy Opp Fund in 2020, aiming for 2035 education expenses. Even if the fund averaged 12% CAGR, the corpus could grow significantly. Use the EduFund SIP calculator for the calculation
- Balanced approach: A wise parent might split SIPs between core equity and balanced funds for stability and a portion in a clean energy fund for growth & impact
Many parents tell EduFund they value investing in India’s growth sectors and want to give their children a sustainable world. Clean energy funds offer both
Risks of Investing in Clean Energy Sector Funds
Concentration Risk
- These funds are sector and concentrated funds, not diversified equity. If the energy sector underperforms, the fund can fall sharply. A crash in oil prices or a slump in solar demand would hit returns
Policy and Regulatory Risk
- Heavy reliance on government incentives means policy changes can affect returns. A reduction in solar subsidies or introduction of new taxes and import duties on equipment can hurt green companies. Energy policies and international climate commitments also play an important role
Market & Volatility Risk
- Energy stocks often have high volatility tied to commodity prices, interest rates, and macro-sentiment. Short-term price swings can be large.
Performance Uncertainty
- Many clean energy funds have short track records and may underperform broad markets during certain cycles. Their concentrated bets mean they can shine during a green boom but lag in a conventional market rally
Greenwashing Concerns
- Not all green funds are fully green. As seen, some funds hold coal and oil stocks alongside renewables. Investors should check holdings to ensure the fund truly aligns with its theme.
Mistakes to Avoid When Investing in Renewable Energy Mutual Funds
This section exists because many investors learn these lessons in an expensive way.
Chasing Recent Returns
If a clean energy fund has delivered crazy returns in the last year, chances are you’re seeing it after the cycle has already moved. Sectoral and thematic funds are cyclical. Entering at peak excitement often leads to disappointment.
Over-Allocating to One Theme
Clean energy is exciting. That doesn’t mean it deserves 40% of your portfolio. Over allocation turns a smart theme into a stressful one. Diversification is not boring. It’s survival.
Who Should and Should Not Invest in Clean Energy Mutual Funds
Ideal Investor Profile
Clean energy mutual funds suit investors who are:
- Long-term oriented (10 years or more)
- Risk-aware
- Comfortable with SIPs and volatility
- Willing to stay invested even when the sector is out of favour
Parents investing in future education goals often fit this profile well, as long as clean energy is not their only bet.
Who Should Avoid Investing in Clean Energy Mutual Funds
You should limit or avoid clean energy mutual funds if you:
- Short-term goals (less than 5 years)
- Prefer low-volatility or capital-protection products
- Panic during temporary market drawdowns
- Need predictable returns year after year
Clean energy rewards patience. It punishes impatience.
Clean energy mutual funds let parents invest in India’s sustainable future while aiming for long-term returns. India’s renewable sector is backed by strong policy, rapidly expanding infrastructure, and global climate commitments. However, these are high-volatility, thematic funds with sector-specific risks. Parents should research carefully, only allocate a small part of their portfolio, and use long-term SIPs.
FAQs on Clean Energy Funds
What Exactly Do Green Energy Mutual Funds Invest In?
Green energy mutual funds invest in companies involved in renewable and clean energy such as solar, wind, hydro power, biofuels, electric mobility, and related green technologies. These funds aim to benefit from India’s long-term shift towards low-carbon and sustainable energy.
How Are Green Energy Funds Different From Regular Energy Funds?
Green energy funds focus only on environmentally sustainable energy companies. Regular energy or sector funds may include fossil fuel companies such as oil, gas, and coal along with power utilities.
Can Green Energy Mutual Funds Invest Globally?
Yes, some green energy funds invest globally through Fund of Funds structures. For example, certain schemes invest in overseas clean-energy companies. Other green energy funds restrict investments only to Indian companies.
What Kind Of Returns Can Green Energy Mutual Funds Deliver?
Returns can vary significantly. Since these are sectoral funds, they may deliver strong returns during favorable phases, sometimes exceeding 20% annualised in certain periods. However, they can also underperform during down cycles. Past returns are not a guarantee of future performance, so checking the latest fund factsheet is important.
How Much Of My Portfolio Should I Allocate To Green Energy Funds?
The allocation depends on your risk appetite and investment horizon. For most investors, a 5% to 15% allocation within the equity portion of the portfolio is considered reasonable. Investors with higher risk tolerance and long-term goals may allocate slightly more.
Sources: Official MF documents and reputable analyses. For e.g. Kotak Securities kotaksecurities.comkotaksecurities.com, Tickertape tickertape.intickertape.in, RenewablesNow renewablesnow.com, DowntoEarth downtoearth.org.in, ET Money/Smallcase smallcase.comdspim.com were used to compile this blog.
