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With the future of Solar shining bright, is it the time to launch Solar ETFs in India

, August 11, 2016, 0 Comments

global clean energy solar energy-etf--MarketExpress-inThe exchange traded funds in India are focused more on the Indian equity market, rather than being sector specific. Gold, equity, debt and ETFs representing the international indices are available on the National Stock Exchange. ETF is a good way for people to participate in the stock market and are usually preferred to mutual funds, owing to their lower operating expenses and better liquidity. Though investing through an ETF is a great option for an investor with a long term perspective to invest in equity without taking too much risk, India has little or no choice for an investor who wants to be more sector specific.

Though there are ETFs available in the Indian market that focus on gold as the underlying asset class, for example Goldman Sachs Gold Exchange Traded Scheme (GS Gold BeES) corresponds to the returns provided by domestic price of gold through physical gold.

An ETF can track an index, commodity, bonds, or group of assets. Renewable energy is gaining popularity with each passing day. However given the volatile nature of the sector, investing in these stocks is sometimes considered as risky. ETFs are a good way to diversify individual stock risks and are regarded as less risky.

The Indian ETF industry still needs to evolve to completely focus on a portfolio of solar, wind, hydropower  and renewable other energy sources to play this sector, as there is no ETF corresponding to alternative energy industry in the country.

Alternative energy will emerge as the winner in the future, since the traditional sources of power are fast depleting. India itself has an ambitious target of installing 175 GW of renewable energy capacity by 2022, out of which 100 GW is from solar energy. However, investors have little choice to invest in this segment in the country, owing to the lack of proper instruments. With solar energy gaining traction in the country lately, I think it is a ripe time for investors to park some funds in this emerging technology. Though the returns will not be great in the short term, but if an investor has patience and can wait for a long term, renewable energy investment will be rewarding.

There are a variety of ETFs focusing on alternative energy sources like solar, wind, hydro etc and trading on foreign exchange. For example, the Global X Yieldco ETF launched in May 2015, trades on NASDAQ under the ticker YLCO and follows the Indxx Global YieldCo Index, which is the underlying index. Though an Indian is allowed to invest in the overseas market, they are not ready to get into the hassles of investing in a foreign country.

An instrument that gives the option to benefit from this rising trend could be beneficial for the investor community.