Pharma funds are specialised mutual funds. They specifically invest in pharmaceutical and healthcare companies. Usually, these funds allocate at least 80% of their investments to stocks and equity-related instruments within the pharma sector. While doing so, they follow the guidelines set by the Securities and Exchange Board of India (SEBI). By investing in pharma funds, investors get to benefit from the growth in the healthcare industry.
It must be noted that the healthcare sector is one of the most preferred investment segments in the market. While it is typically linked to medical care and treatment, the pharmaceutical industry also forms a core part of this sector. To tap into the potential growth opportunities in this market segment, you can consider investing in pharma funds.
Let us examine the meaning of pharma funds, how they can benefit you and what to factor in before investing in these baskets of assets.
What are pharma sector funds
A pharma sector fund is a type of mutual fund that invests predominantly in companies that belong to the pharmaceutical industry. Since it has a specific sectoral theme, a pharma fund is categorised as a sectoral or thematic fund. According to AMFI’s guidelines, such funds must invest at least 80% of their total assets in the pharma sector.
The pharmaceutical industry, like the healthcare sector, is a defensive market segment. Such market segments are typically considered to be in constant demand, as a result of which they are not as easily or as intensely affected by economic downturns. Nevertheless, since pharma funds are, in essence, equity investments linked to the market, they are not risk-free.
Benefits of investing in Pharma Sector Funds
Including pharma sector funds in your portfolio via a lumpsum or a SIP investment can be beneficial to your overall financial goals in many ways. Some of the top advantages of investing in pharma funds include the following:
- Exposure to leading pharma companies: By investing in pharma funds, you gain easy exposure to the top pharmaceutical companies in the market. Most leading pharma mutual fund schemes choose the top-performing stocks for their basket of investments. So, you can benefit from the potential growth of these industry leaders.
- Easy portfolio diversification: Sectoral pharma funds make it easier for you to diversify your portfolio to include the pharmaceutical sector. This is less cumbersome than having to assess different individual pharma stocks yourself and decide which companies to invest in.
- Expert fund management: Pharma sector funds are typically actively managed by expert fund managers who make all the crucial decisions about which stocks to invest in, the proportion of assets to allocate to different companies, when to redeem the investments and more. You can benefit from their expertise through this investment.
- Potentially stable growth: Unlike cyclical sectors that go through phases of volatile upturns and downturns, defensive sectors like the pharma market segment are relatively stable. So, by including pharma funds in your portfolio, you can gain exposure to the equity market without compromising too much on portfolio stability.
Who should invest in pharma mutual funds
Ideally, pharma mutual funds are suitable for investors who want to focus on the pharmaceutical and healthcare sectors. It must be noted that such a concentrated investment offers potential rewards but also carries significant risks. For more clarity, let’s study in detail who should consider investing in pharma funds:
Investors with a high-risk tolerance
Pharma mutual funds are sector-specific. This means they invest heavily in one industry. Usually, such a lack of diversification leads to significant losses if the pharma sector underperforms. Furthermore, because of this concentration risk, only those who can handle high volatility and are comfortable with the possibility of losing money should invest in these funds. Also, such investors should be prepared to stay invested even during tough times for the sector.
Investors with a long-term investment horizon
It is worth mentioning that the economy and individual sectors, like pharmaceuticals, move in cycles of “highs” and “lows”. What might be underperforming today could be tomorrow’s outperformer. Therefore, investors who are patient and have a long-term investment horizon are better positioned to ride out these cycles. That’s because such investors benefit from the sector’s recovery and growth.
Investors who believe in the growth of the pharma sector
In India, it is generally considered that the pharma and healthcare sectors are important for economic growth. The underlying rationale is that as the population grows, healthcare becomes increasingly important and the demand for pharmaceuticals increases.
Now, as an investor, if you see long-term potential in these trends and believe in the sector's future growth, you can find pharma funds to be a good fit for your portfolio.
Is a pharma fund investment right for you
A pharma sector fund may be a suitable investment for you if:
- You want portfolio exposure in the healthcare and pharmaceutical industry.
- You are comfortable with sector-specific risks.
- You have a long-term investment outlook.
- You expect the pharmaceutical sector to grow over the long term.
- You seek the expertise of fund managers.
Recommended sectoral pharma funds you can invest in 2024
- Mirae Asset Healthcare Fund
- Quant Healthcare Fund
- DSP Healthcare Fund
- Nippon India Pharma Fund
- Aditya Birla Sun Life Pharma & Healthcare Fund
How to Invest in Pharma Sector Mutual Funds?
You can invest in your choice of pharma funds in any one of two ways, as outlined below:
- Directly through the mutual fund house: You can directly invest in pharma sector funds directly with the Asset Management Company (AMC). Redemption of your fund units also happens through the fund house.
- Through online mutual fund platforms: You can simply invest in pharma funds via your mutual fund app or platform like the Bajaj Finserv Mutual Funds Platform.
Things to know before you invest in a pharma mutual fund
Before you invest in a pharma fund, you need to consider certain important factors and make an informed decision. These aspects include:
- Expected returns: Historical performance is not a guarantee of future profitability. However, by studying the past performance of a pharma fund, you can set a benchmark for your expectations. This will help you assess if the fund aligns with your goals.
- Expense ratio: The expense ratio tells you about the costs involved in investing in the fund. A higher expense ratio can be detrimental to your net returns from the pharma fund. So, compare the costs of investing in different top pharma sector funds and make a cost-effective choice.
- Fund management expertise: The expertise and skill of the fund manager are also crucial aspects to consider if you want to invest in pharma funds. Ideally, you must look for a fund that is administered by an experienced fund manager with a proven track record.
- Concentration risk: Since pharma funds invest at least 80% of their capital in one sector, they carry a high level of concentration risk. This means that if the pharmaceutical sector underperforms, the risk of your portfolio value dropping is significantly high — unless you diversify into different asset classes.
Conclusion
With this, we conclude the guide on what pharma funds are and how they can benefit you. They may be suitable for you if you want to diversify your portfolio across different market sectors or tap into the growth prospects of the pharma industry. However, before you invest in these funds, ensure that you factor in the essential aspects outlined above.
To make an informed choice, you can visit the Bajaj Finserv Mutual Fund Platform and browse through over 1,000 mutual fund options. You can compare different types of mutual funds and select the fund that best aligns with your goals.
