Date of Publication :8th October 2024

Abstract:The global shift towards sustainable investing has significantly amplified the relevance of renewable index funds, particularly in the context of India’s growing commitment to environmental sustainability. Renewable index funds, which allocate investments to companies involved in renewable energy sources such as wind, solar, and hydroelectric power, have emerged as a compelling alternative to traditional energy sector investments. This paper explores the necessity of renewable index funds within the Indian market, examining their historical performance and comparing them with traditional oil and gas funds. The analysis begins by contextualizing the concept of index funds, focusing on their ability to replicate the performance of specific market indices through passive investment strategies. Renewable index funds, a sector-specific variant, have gained prominence due to technological advancements, supportive government policies, and rising investor demand driven by environmental consciousness. Using performance data from the National Stock Exchange of India, the study highlights the impressive returns generated by the top 20 renewable energy stocks from 2019 to 2024, demonstrating the sector's robust growth potential. The study also includes a comparative analysis of global renewable indices such as the S&P Global Clean Energy Index, MSCI Global Alternative Energy Index, NASDAQ Clean Edge Green Energy Index, and FTSE Environmental Opportunities Index. These indices underscore the growing international interest in renewable energy investments and provide a benchmark for evaluating the performance of Indian renewable index funds. A key focus of this paper is the juxtaposition of renewable index funds with traditional oil and gas funds. Over the past five years, the renewable sector has outperformed the oil and gas sector in terms of returns, growth potential, and stability. This comparative analysis emphasizes the strategic necessity of incorporating renewable index funds into investment portfolios, particularly in light of the oil and ga s sector's moderate returns and high volatility. The findings suggest that renewable index funds not only offer substantial financi al returns but also align with global sustainability goals, making them a vital component of future investment strategies in India. The paper further discusses the methodology for designing renewable index funds, advocating for the use of market-capitalization weighting to ensure accurate representation of market value and to capture the performance of both large-cap and high-growth companies within the renewable energy sector. The study concludes that the rise of renewable index funds represents a critical evolution in the financial markets, offering investors a means to achieve both ethical and financial objectives in an era where sustainability is paramount.

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