Misconceptions

• One misconception is that alternative energy mutual funds invest only in solar power, and it is too expensive to be profitable. Many alternative energy funds invest in several kinds of energy sources, from solar power to wind power to ethanol and bio-diesel fuels. These sources may cost more at first, but that is simply because they are not used on a large scale. In fact, a few studies have shown that it could be less expensive to make ethanol fuel than it is to make gasoline, but since most cars don't run on pure ethanol, it isn't feasible. Alternative energy could be profitable if it is applied to everyday life in the right way, most experts agree.
  
  

The Facts

• Alternative energy mutual funds invest in the companies that build the components for the solar farms, wind towers, and for those who own the farms. They invest in corn growers for ethanol fuel and companies that develop alternative power systems for vehicles. Each fund has a focus on either the technology side or the production side, and each concentrates in either advanced fossil fuels, nuclear power, wind and solar or clean energy sources.
  
  

Risk Factors

• Alternative energy source mutual funds present a lot of risks because the energy sources invested in are not widely used. There is a chance that political and social factors prevent them from ever being accepted or put into widespread use, even if the technology becomes available to make them a possibility. Alternative energy mutual fund managers constantly need to seek out and research alternative energy companies--and with such a wide field, and so many factors to consider, picking a winner is not easy.
  
  

Benefits

• Alternative energy mutual funds allow for regular investors to put their money into this eco-friendly industry. It makes investors feel good about themselves, while contributing to something that really could affect the lives of their children and grandchildren. When anyone invests in this industry, it brings the possibility of cleaner energy a little closer. Mutual funds contribute a large amount of money to companies that are still in development, so they can continue to improve their technology.
  
  

Features

• Alternative energy mutual funds work just like any other fund and are traded on major indexes. They focus on several different types of alternative energy companies, including "clean energy" like solar, wind and hydrogen, as well as advanced fossil fuels including ethanol blends and biodiesel. They also invest in nuclear power. These funds have a net asset value, which reflects the total amount of assets in the fund, a closing and opening price, and price history. They buy shares in many public companies through the investment company that manages the fund. They can be similar to exchange traded funds, or index funds that follow clean energy indexes like the CleanTech Energy Index and WilderHill Clean Energy Index.