Kotak Mutual Fund launches energy opportunities fund; should you invest?

The new fund offer for Kotak Energy Opportunities Fund will close on April 17.

Kotak Mutual Fund has launched an energy opportunities fund, an open-ended equity scheme following the energy theme.

The new fund offer (NFO) for Kotak Energy Opportunities Fund opened for public subscription on April 3 and will close on April 17.

What’s on offer

Energy opportunities fund is a new category in the Indian mutual fund industry with just three schemes, having a track record of just a little more than a year.

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The energy theme encompasses industries involved in the exploration, extraction, production, refining, marketing, distribution, consultation and sale of energy resources. The term energy theme includes traditional crude oil, natural gas and coal, as well as new energy—that derived from renewable sources such as hydropower, solar and wind, among others.

The sector is at the heart of India’s growth story—rising power demand, renewable expansion and infrastructure upgrades—and paints a promising long-term picture. Kotak's new scheme aims to tap into this opportunity, spanning traditional oil and gas, renewables, and ancillary segments like transmission and smart grids.

Harsha Upadhyaya and Mandar Pawar will be the co-fund-managers for equity and overseas investment. Abhishek Bisen will be the fund manager for debt investment.

According to the fund house, power and renewables are attractive spaces to invest in at present, with generation, and transmission and distribution expected to attract significant capital investment.

“Some of the capital goods companies which are part of this ecosystem will also be large beneficiaries of this investment phase. The gas sector is also likely to get a fillip from lower LNG (liquefied natural gas) prices expected in coming years and development of regasification, pipeline and city gas distribution infrastructure across the country,” said Upadhyaya, who also serves as chief investment officer, Kotak Mutual Fund.

The scheme will ideally have 30-40 stocks in the portfolio.

What works?

The government has been working towards developing clean energy infrastructure. Its policies have been supportive of the power sector, enabling generation, transmission and distribution through multiple sources, with a higher emphasis on the renewable segment.

The fund house expects the government to continue incentivising investments in the renewables sector such as solar, hydro, wind and nuclear. Other than this, the government will also be spending towards improving the distribution and grid infrastructure.

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“There is also scope to bring in fuel pricing reforms in the petroleum sector, which admittedly is more challenging for the government. However, if this is undertaken, there can be meaningful value unlocking potential for some of the oil and gas companies,” said Upadhyaya.

Nilesh D Naik, head of investment products at Share.Market (PhonePe Wealth), also believes that the energy sector offers a good opportunity from a long-term perspective given the potential demand for energy in a growing economy like India.

“The recent underperformance of the sector also provides some valuation comfort in the sector,” said Naik.

What doesn’t work?

During H1FY25, the Nifty Energy Index delivered a little over 13 percent return against the Nifty’s return of over 15.5 percent. However, the major part of the underperformance came in during H2FY25 when there was a sharp correction in power and capital goods sector stocks, arising from a combination of rich valuations and lower earnings trajectory.

According to Nikunj Saraf, vice president, Choice Wealth, thematic funds live and die by sector cycles—and energy is no exception.

“Oil price shocks, delays in renewables adoption, or policy flip-flops could dent returns. Plus, the fund’s concentrated nature means volatility is par for the course,” he said.

Saraf believes this isn’t a sector that will deliver fireworks overnight. “Energy projects take years to materialise, and profitability depends on steady execution, regulatory support and macroeconomic stability,” he pointed out.

What should investors do?

Experts believe that sectoral or thematic funds are typically meant for seasoned investors with a very high risk appetite, who have their core portfolio in place and who want to take a bet based on their views on a specific sector or theme.

Additionally, investing in NFOs is not recommended as the funds are new to the market and have not experienced different market cycles to gauge fund agility.

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“Investors are recommended to invest in active diversified equity funds such as market cap-based funds and strategy-based funds like focused, contra/value as these funds will give exposure across the categories and sectors and help to build a diversified portfolio, which helps to ride across the market cycles and generate additional alpha,” said Chirag Muni, executive director, Anand Rathi Wealth.

For those looking to invest in the Energy Opportunities fund, Choice Wealth’s Saraf advises that it is for patient investors who understand that energy is a long-term play.

“If you’re looking for modest, steady gains over five to seven years—not extravagant returns—it could fit into a well-diversified portfolio. But if you expect rapid outperformance, look elsewhere. The energy story will play out, but slowly,” he said.