Newer theme-based mutual funds (MFs) have been hitting the stands in recent times. Electric vehicles seem to be the flavor the season, as more Indian auto-makers launch electric vehicles (EV).
Three mutual funds have recently filed applications for electric vehicle funds with SEBI. These are Navi Electric Vehicles and Driving Technology Fund of Fund, Mirae Asset Electric Autonomous Vehicle ETF Fund of Fund and Nippon India S&P EV Index Fund.
While electric vehicles have grabbed attention, thanks to Tesla’s success, will they be good investment options?
In early phase of growth
Electric vehicles are still new and emerging as alternatives to fossil fuel guzzling automobiles.
“An electric vehicle and autonomous driving fund at this point would allow investors to participate in a theme that has a long runway for growth as it is still in its nascent stages. But at the same time, there are already promising signs of its future growth,” says Swarup Mohanty, chief executive officer of Mirae MF.
To be sure, electric vehicle funds could also end up holding stocks of traditional car makers, as some of these large global manufacturers are now allocating significant resources to developing EVs.
Take the case of the German automaker Volkswagen, which is looking to achieve 70 percent of its sales in Europe from electric vehicles by 2030.
“EV sector is still young. So companies are still making cars with combustion engines, but then some of the big global names now have a serious focus on EV manufacturing. The underlying funds also look at capturing growth opportunities in ancillary businesses catering to EVs such as semi-conductors and batteries, in different parts of the world,” says Siddharth Srivastava, Head-ETF products, Mirae MF.
The Mirae Asset Electric & Autonomous Vehicles ETFs Fund of Fund will invest in Global X Autonomous and Electric Vehicle ETF – DRIV (launched in 2018), Global X Lithium and Battery Tech ETF (launched in 2010), and may also deploy sums in Global X China Electric Vehicle and Battery ETF (launched in 2020). The fund house is yet to take a final call on this. The DRIV will also invest in driverless car technology.
The US-based Global X ETFs has developed exchange traded funds on several themes, and is a part of the Mirae Asset Financial Group.
Change in buying preferences
While EV sales have already become significant in the US, Europe and China, Indian buyers are also showing interest in EVs.
The EY Mobility Consumer Index indicates that nearly 90 percent of the Indian consumers were willing to pay a premium for buying an EV and over 40 percent were ready to pay a premium of up to 20 percent.
“In the last year-and-a-half, there has been a huge shift in awareness and now there are more conversations on whether electric cars should be purchased instead of the regular combustion engine vehicles,” points out Vishal Jain, Head-ETF, Nippon Life India Mutual Fund.
He goes on to add that “The movement towards non-fossil fuels is happening quite fast. The EV technology is still evolving. Right now, Lithium Ion batteries and Hydrogen Cells are seen as technologies that can power EVs. These funds will try to capture the direction in which the EV technology evolves.”
Nippon India S&P EV Index Fund will track the S&P Kensho Electric Vehicles Index, which invests in US-listed companies that are part of the EV industry. The index could invest in companies that are involved in manufacturing of electric road vehicles, EV engine systems, energy storage systems, charging infrastructure, and clean energy technology such as hydrogen fuel cells. It is a new index launched in 2018.
The Sachin Bansal-backed Navi MF has rolled out an EV fund, which will aim to track the performance of the STOXX Global Electric Vehicles & Driving Technology NET Index. This index comprises companies that are involved in the production of electric vehicles and assisted driving technologies. The index was launched in 2012.
What should investors do?
Each fund is looking to follow a different index or ETF.
So, each scheme will differ in terms of the companies and businesses invested. As the EV space is still at a very nascent stage, some indices may be overweight on certain technologies, while others may completely ignore those, depending on the stock selection criteria.
Investors looking to invest in an EV fund would need to look at the underlying indices or ETFs and their portfolios.
“This would help in understanding what kind of sub-segments the fund is targeting within the EV space,” says Anubhav Srivastava, partner and fund manager at Infinity Alternatives.
“These are high-risk high-return investment themes. An investor who is well-informed about the EV industry would have a better idea about the kind of exposures to be taken in this space,” he adds.
Also read: Sector and theme funds: Returns come in spurts, but risks galore
You can take small exposures to any of these funds if you understand the emerging EV space and the companies that the underlying funds invest in. For most investors though, it’s better to wait till the EV space develops and there are many options for underlying funds to invest in.