How to plan SIP investments in renewable energy companies

The renewable energy sector in India is primed for growth given the government’s strong focus and initiatives in this area. Investing in companies involved in renewable energy such as solar, wind, and hydropower through systematic investment plans (SIPs) can help benefit from the long-term prospects of this sector. Read on to learn more about mutual fund investment planning through SIPs and its potential.

Understanding the renewable energy sector in India

Various research reports project India’s renewable energy market size to reach over $150 billion by 2030 from the current levels of around $50 billion. Solar and wind energy are expected to dominate additions to India’s renewable energy capacity over the next decade. The sector is also generating significant employment opportunities with an estimated employment potential of over 1 million jobs by 2030. These ambitious targets and growth projections make the renewable energy sector an attractive investment opportunity. Investing through SIPs in companies developing renewable energy infrastructure or those involved in the manufacturing of components can help in benefitting from the long-term growth potential.

Types of funds to consider for an SIP investment

There are various mutual fund schemes focused on the renewable energy theme that investors can consider for SIP investments.

  • Sector/thematic funds: These funds specifically invest in companies engaged in renewable energy production, equipment manufacturing, services etc.
  • Flexi cap funds: Flexi cap funds have the flexibility to dynamically allocate up to 35% of their corpus in renewable energy companies basis opportunities.
  • Multi cap funds: Multi cap funds can allocate a portion of their portfolio towards larger renewable energy companies.
  • ELSS funds: Some ELSS or equity-linked savings schemes also provide exposure to renewables to avail tax benefits.

Using an SIP calculator 

Investors need to determine the right amount for their monthly SIPs based on their investment horizon and return expectations. An SIP calculator helps calculate the monthly SIP amount required to accumulate a target amount over a specific number of years. For example, if an investor wants to accumulate Rs. 15 lakh in 10 years by investing in a renewable energy-focused fund, assuming a conservative 10% annual return, the monthly SIP amount required would be Rs. 7,500.

The mutual fund SIP calculator considers factors like the monthly investment amount, the annual rate of return, the number of years, and the number of contributions to calculate the future value. Using an SIP calculator ensures investors select an amount aligned to their financial goals.

Systematic withdrawal for regular income

In addition to accumulation, SIPs also allow for generating regular income post-retirement using the systematic withdrawal feature. Investors can opt for monthly or quarterly withdrawals to meet routine expenses from the corpus accumulated through long-term SIPs.  For example, after accumulating Rs. 15 lakh through 10-year SIPs in a renewable fund, one can opt for a 0.75% monthly withdrawal to generate Rs. 1,125 per month in retirement. The withdrawal amount is reviewed periodically to account for inflation.

Diversifying across funds and sectors

While investing in funds focused on renewable energy can help with gaining directly from the sector growth, diversifying across funds and sub-sectors ensures balanced exposure. For instance, investing in:

– A solar energy fund and a wind energy fund

– A manufacturing fund and an infrastructure fund

– A multi-cap fund in addition to thematic funds

This diversification helps manage fund-specific and sector-specific risks to a certain extent. Rebalancing periodically ensures optimal allocation as the sub-sectors within renewables may perform differently at different times.

By understanding these factors and customizing the SIPs based on their risk profiles, time horizons, and financial goals, investors can craft a renewable energy-focused portfolio to benefit from India’s renewable energy growth story in the coming decades. Regular SIPs also help mitigate volatility and the risks associated with lump sum investments in this developing sector.

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