Alternative Energy Mutual Funds: Introduction, Investment, Risk, Example

In this article, we’ll discuss about Alternative Energy Mutual Funds, An introduction to Alternative Energy Mutual Funds, how Alternative Energy Mutual Funds work and how to invest in Alternative Energy Mutual Funds along with the risks associated with Alternative Energy Mutual Funds.

What is meant by the term Alternative Energy?
Alternative energy is a term used for an energy source that is an alternative to using fossil fuels like petrol, diesel, gas, etc. Generally, it indicates energies that are non-traditional and have low environmental impact. Here is the list of Alternative Energy Sources:
• Biomass
• Geothermal
• Solar energy (Example of Solar Energy Fund)
• Wind energy (Example of Wind Energy Mutual Fund)
• Wave Power

What is an alternative energy mutual fund?
An alternative energy mutual fund is a mutual fund company that collects money from investors who are looking for capital appreciation by investing in the alternative energy sector companies. This collected money is then invested in a group of companies that are engaged in some way in the development of alternative energy resources, such as wind, geothermal or solar energy. The major alternative energy mutual funds also invest in companies that promote a clean environment. Though alternative energy mutual fund is supposed to be a new concept, but there have been some famous alternative energy mutual funds which are existing in the markets for a long time:
• The New Alternatives Fund: NALFX Mutual Fund, began 1982: investments in a variety of companies focusing on renewable energy sources, as well as interests in companies focusing on energy conservation and environmental protection
• The Guinness Atkinson Global Energy Fund Review GAGEX , symbol GAAEX, began 2006: The fund invests in global companies that "derive more than 50 percent of their revenue from alternative energy or alternative energy technology

How can I invest in alternative energy mutual fund?
The simplest way to invest in alternative energy mutual funds is to put your money in the alternative energy mutual funds for e.g. those listed above.

How do I measure the performance of the alternative energy mutual fund?
The performance of any mutual fund is to be measured against a benchmark index. In case of alternative energy mutual fund, the index can be Alternative Energy index. This includes renewable energy and environmental technologies (often referred to as cleantech), as well as transitional and alternative fuels such as nuclear power and natural gas. Alternate of Alternative Energy Indices are a stock market index which have been developed to monitor investment in alternative energy, for e.g. Dow Jones has World Alternative Energy Index, which tracks the performance of 20 largest global stocks in renewable energy, energy efficiency and distributed energy. As the world transitions to a diversified low-emissions energy infrastructure, the emerging energy market will continue to evolve. During the transition from a predominately fossil fuel based energy economy the transition will encompass technologies such as carbon capture and storage to reduce emissions from coal-based utilities, an increased use of natural gas as a cleaner burning alternative, and increased use of nuclear power.
Then there are other indices from other organization like Ardour Global Alternative Energy Index, AXglobal and Credit Suisse, including regional alternative energy index like ALTEXAustralia, Ludlow, Wilderhill, etc.

Related Articles: Green Mutual Funds  Low Cost Mutual Funds

How to decide whether a particular alternative energy mutual fund is good investment or not?
That is a highly subjective decision and varies from individual to individual. Just because some mutual fund professional is managing your money does not mean that you can be assured of returns and can forget the losses. It has to be determined on the factors of demand and supply, the requirement of alternative energy, like
• How will this source of alternative energy provide a substitute for current sources of energy?
• How cost-effective will this source of alternative energy prove to be?
• What areas of the world can utilize this source of energy?
Now since we are concentrating on alternative energy mutual fund investments, the past performance of mutual fund house can also be looked upon.
Related: Wind, Solar, Biomass, Geothermal - Which Fund/Stocks Should I Invest?

Though there is no guarantee of assured returns from a mutual fund, but past performance does sometime shows how well the mutual fund has been performing and can something be expected from it. Click on the above link to see how the sub-sectors have performed historically.

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