Pharma Sector Funds

Pharma mutual funds primarily invest in companies belonging to the healthcare & pharma sectors.
Pharma Sector Funds
3 min
07-May-2024

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 is a Pharma Mutual Fund?

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.

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.

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.

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Frequently asked questions

Are pharma mutual funds safe investments?

Pharma funds being market-linked investments carry an inherent risk. Their performance depends on the company’s financials, market forces, external economic factors and investor sentiment, among other things.

Which is the best pharma index fund to invest in?
The best pharma sector funds for your portfolio depend on various factors like your risk tolerance levels, your expected returns, investment goals, investment horizon and the like.
How do I know if a pharma fund investment is good for my portfolio?
A pharma mutual fund that matches your preferred risk-reward ratio is generally considered a good fit for your portfolio.
Are pharma funds profitable investments?
Like all equity investments, pharma funds do not have any guaranteed profitability. The gains, if any, depend entirely on how the NAV of the fund moves during your investment tenure.
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Disclaimer

Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.