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Business News/ Mutual Funds / 5 best mutual funds in the pharma and healthcare sector; check full list
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5 best mutual funds in the pharma and healthcare sector; check full list

The Indian pharmaceutical sector holds significant growth potential, yet it is crucial to acknowledge the accompanying risks and uncertainties. Before making any commitments to invest in a pharma fund, thorough research is imperative.

There are many mutual funds in the pharma and healthcare sector that investors may put their money in.Premium
There are many mutual funds in the pharma and healthcare sector that investors may put their money in.

Numerous experienced market participants are expressing support for the healthcare and pharmaceutical sectors, asserting that they are poised for future success. This sentiment is unsurprising, given the impressive outperformance of the Nifty Pharma Index compared to the broader markets.

As the world contends with emerging diseases and viruses, the focus remains on the healthcare sector. While many other industries faltered amid the instability of global economies, the healthcare sector persists in providing returns to its investors. This is evident in the performance of diverse healthcare stocks and the remarkable earnings reported by pharmaceutical and healthcare mutual funds.

A glimpse at pharma sector performance

Access to healthcare is an essential requirement, not a luxury. The consistent increase in demand for medical services and products is driven by various factors. Furthermore, during times of economic uncertainty, investors frequently gravitate towards “defensive" sectors characterized by consistent demand and reliable income streams. Healthcare aligns with these criteria, positioning it as a relatively stable investment choice.

The table below presents several well-known pharmaceutical and healthcare funds, along with their respective five-year and 10-year returns, for your reference.

Name of the fund

Five-year returns (in %)

10-year returns (in %)

ICICI Prudential Pharma Healthcare and Diagnostics (P.H.D) Fund

29.22

-

Mirae Asset Healthcare Fund

27.55

-

ITI Pharma & Healthcare Fund

27.15

-

SBI Healthcare Opportunities Fund

26.68

17.16

Tata India Pharma & Heathcare Fund

26.40

-

Source: AMFI (As of February 20, 2024)

Should you invest in pharma and healthcare funds?

The ongoing surge in the Indian pharmaceutical sector has created wealth for investors, especially those invested in healthcare companies. Additionally, the pharmaceutical and healthcare sector serves as a defensive theme as people persist in seeking medical assistance and taking medications even during challenging times. The spotlight will remain on healthcare, and numerous companies within these sectors are striving to perform optimally within the given constraints.

Furthermore, the pharmaceutical sector has exhibited robust performance in the Indian stock market. This can be attributed to factors such as the worldwide demand for generics, government backing, and the defensive characteristics inherent in the sector.

Those looking to invest in this sector should be mindful of the stringent regulations governing the pharmaceutical industry, as alterations in these regulations may affect profitability. Given the high level of competition both domestically and internationally, Indian companies must consistently innovate and enhance efficiency to sustain their market presence. Additionally, the Indian government enforces price controls on certain essential drugs, potentially restricting profit margins for companies.

A cautionary note for investors

Examining the holdings of diversified equity funds, it is evident that large-cap-oriented portfolios typically have a moderate average exposure of 2-5% to the pharma/healthcare sector. In contrast, multicap and mid-cap funds exhibit a higher allocation to the pharma/healthcare sector. Large-cap funds concentrate on established companies with proven track records, while multicap and mid-cap funds encompass a broader spectrum, investing in mid-sized and smaller firms. The growth potential of the pharma/healthcare sector in these segments catalyzes increased allocation in these funds.

Investors must recognize that this is a sector-specific fund, necessitating a long-term investment perspective. The presence of a high-risk factor underscores the importance of having a higher risk tolerance. Engaging in investments in this thematic fund category should be approached with careful due diligence and consideration to prevent potential long-term losses.

 

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Published: 21 Feb 2024, 10:10 AM IST
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