Rs. 100- Rs. 10 crore
Start investing with Rs. 100 | Easy KYC | Expert-managed funds
Types of Mutual Funds Explained- Which One Should You Choose
In summary
Pharma sector funds are sectoral equity mutual funds that focus on companies operating in the pharmaceutical and related healthcare industries.
- A sectoral fund must invest at least 80% of its total assets in equity and equity-related instruments of its chosen sector.
- Pharma funds can hold companies involved in pharmaceuticals, biotechnology, healthcare services, diagnostics, and medical devices.
- Concentration in one sector can increase volatility compared with diversified equity funds.
- Regulatory changes, drug approvals, pricing pressure, competition, and research outcomes can affect returns.
- You can invest through an SIP or lumpsum after completing the required KYC process.
Pharma funds can provide focused exposure to healthcare-related businesses, but they remain market-linked equity investments. Your goals, risk tolerance, and investment horizon matter when assessing them.
What are pharma sector funds?
Pharma sector funds are sectoral equity mutual funds that invest predominantly in companies belonging to the pharmaceutical sector. Under SEBI's current scheme categorisation framework, a sectoral fund must invest at least 80% of its total assets in equity and equity-related instruments of a particular sector.
A pharma fund may invest across different types of businesses within its defined investment universe. These can include pharmaceutical companies, biotechnology businesses, hospitals, diagnostic companies, medical device manufacturers, and healthcare-related businesses, depending on the scheme's investment mandate.
Because the portfolio is concentrated in one sector, a pharma fund can be more sensitive to sector-specific developments than a diversified equity fund.
You can learn more about mutual funds before exploring sector-focused schemes.
How do pharma mutual funds work?
A pharma mutual fund collects money from investors and uses it to build a portfolio of securities belonging mainly to the pharmaceutical sector. The fund manager selects investments according to the scheme's objective and portfolio mandate.
For example, imagine Neha has Rs. 1 lakh to invest for a long-term financial goal. Instead of selecting individual pharmaceutical shares herself, she could invest through a pharma fund and obtain exposure to a portfolio of companies within the sector. The value of her investment would still rise or fall with the market value of the securities held by the fund.
The fund's performance can be affected by healthcare demand, regulatory changes, drug approvals, pricing pressure, competition, research and development outcomes, and broader market conditions.
What are the benefits of pharma sector funds?
Before considering the advantages, remember that these benefits do not remove the market and concentration risks associated with sectoral investing.
Focused exposure to the pharma sector
A pharma fund allows you to obtain exposure to several companies within the pharmaceutical and related healthcare industries through one mutual fund scheme.
Professional fund management
A fund manager researches companies and manages the portfolio according to the scheme's investment objective. You can therefore obtain sector exposure without selecting and monitoring every individual share yourself. You can read more about fund managers.
Choice of investment mode
Depending on the scheme, you can invest through a regular contribution such as an SIP investment or make a lumpsum investment.
What are the risks of pharma sector funds?
The main risk comes from concentration. A pharma fund focuses on one sector, so developments affecting that sector can have a significant effect on the portfolio.
Sector concentration risk
A diversified equity fund spreads investments across several industries, whereas a pharma fund concentrates primarily on one sector. If pharmaceutical companies perform poorly, the fund can be affected more directly.
Regulatory and approval risk
Pharmaceutical companies depend on regulatory approvals for medicines and other products. Delays, failed trials, changes in regulations, or adverse decisions can affect individual companies and, in turn, the fund.
Competition and pricing pressure
Competition between pharmaceutical and biotechnology companies can affect market share and profit margins. Changes in medicine pricing can also affect company earnings.
Market risk
Pharma funds are equity investments, so their NAV can fluctuate with market conditions. The healthcare sector may sometimes show different behaviour from other industries, but a pharma fund is not protected from broader market declines.
SEBI's Riskometer can help you understand the risk level assigned to an individual mutual fund scheme. The six categories are Low, Low to Moderate, Moderate, Moderately High, High, and Very High.
Who may consider pharma sector funds?
Pharma sector funds may be considered by investors who understand the risks of concentrating investments in one sector and have a long-term investment horizon.
They may be relevant if you:
- Want focused exposure to pharmaceutical and healthcare businesses.
- Can tolerate significant fluctuations in the value of your investment.
- Have a long-term financial goal.
- Understand that the pharma sector can move through different business and market cycles.
- Are willing to diversify your overall portfolio rather than relying only on one sector.
Your decision should depend on your financial goals and risk tolerance, rather than only on expectations about the future growth of the pharma sector.
How can you choose a pharma mutual fund?
There is no single pharma fund that is appropriate for every investor. Compare schemes using factors that help you understand both the potential and the risks.
Check the investment objective
Read the scheme's investment objective and portfolio mandate to understand where the fund can invest.
Review the portfolio
Look at the companies and sub-sectors held by the fund. This helps you understand how concentrated the portfolio is and what types of healthcare businesses influence its performance.
Compare the expense ratio
The expense ratio represents the expenses charged for managing and operating a mutual fund. Compare it with similar schemes, while also considering the fund's strategy and performance.
Consider the fund manager and track record
Review the fund manager's experience and the scheme's historical performance. Past performance does not guarantee future returns, so use it as one part of your assessment rather than as a prediction.
How can you invest in pharma sector funds?
You can invest in a pharma sector mutual fund after completing the required KYC process.
The basic process is:
- Research the scheme and understand its investment objective, portfolio, risk level, and costs.
- Choose an investment platform or the route through which you want to invest.
- Complete your KYC requirements before investing.
- Choose an SIP or lumpsum investment, depending on your financial plan.
- Review the investment periodically to check whether it remains aligned with your goals.
If you use the Bajaj Broking website, you can explore mutual fund schemes and compare relevant information before investing.
How are pharma sector funds taxed?
Pharma sector funds are equity-oriented mutual funds when they meet the applicable equity allocation requirements. For units of an equity-oriented fund, the holding period for determining long-term or short-term capital gains is 12 months.
For transfers on or after 23 July 2024, short-term capital gains covered by Section 111A are taxed at 20%, subject to the applicable conditions. Long-term capital gains covered by Section 112A are taxed at 12.5% on gains exceeding Rs. 1.25 lakh in a financial year, subject to applicable conditions.
Pharma sector funds do not provide a specific tax deduction simply because they invest in pharmaceutical companies. Tax treatment can depend on the fund structure, holding period, and applicable tax rules.
What should you check before investing?
Look beyond recent returns when assessing a pharma fund. Consider the scheme's investment objective, portfolio concentration, expense ratio, fund management approach, risk level, and investment horizon.
For example, if Neha's Rs. 1 lakh investment is intended for a goal five years away, she should consider whether she can tolerate periods when the pharma sector underperforms. A long horizon does not remove risk, but it gives her more time to assess whether the investment remains appropriate for her goal.
Conclusion
Pharma sector funds provide focused exposure to pharmaceutical and related healthcare companies through a mutual fund. Under SEBI's current framework, sectoral funds invest at least 80% of their total assets in equity and equity-related instruments of the specified sector.
This focused exposure can also increase concentration risk. Before investing, consider the scheme's portfolio, Riskometer, costs, investment objective, and your own financial goals and risk tolerance.
Last reviewed: September 2026
Mutual funds are subject to market risk. Please read the scheme-related documents carefully before investing.
Explore Investment Tools
Articles and Insights
Frequently Asked Questions
Risk and suitability
Returns and investment period
Tax and fund selection
Are pharma mutual funds safe investments?
Pharma mutual funds are market-linked equity investments, so they carry investment risk. Their value can be affected by company performance, regulatory changes, drug approvals, industry competition, economic conditions, and broader market movements. Their sector concentration can also make them more volatile than diversified equity funds.
Are pharma mutual funds high-risk investments?
Pharma mutual funds can carry high risk because they concentrate investments in one sector. If pharmaceutical companies or the wider sector perform poorly, the fund can be affected significantly. Check the individual scheme's Riskometer and portfolio before investing, and consider whether the level of risk is consistent with your financial goals.
Is there a lock-in period for pharma sector funds?
Most open-ended pharma sector funds do not have a mandatory lock-in period. However, a scheme may apply an exit load when you redeem units within a specified period. Check the scheme documents for the applicable redemption conditions before investing.
Can pharma mutual funds generate high returns?
Pharma mutual funds can generate gains when the securities in their portfolios increase in value, but returns are not guaranteed. Their performance depends on the pharmaceutical sector, individual holdings, market conditions, and other factors. A fund can also lose value. Do not treat past returns as an assurance of future performance.
What is the minimum investment period for pharma mutual funds?
There is no universal minimum investment period for pharma sector funds. Your investment horizon should reflect your financial goal and your ability to tolerate sector-specific volatility. Check the scheme documents for any applicable exit-load period or redemption conditions before investing.
How does an SIP work in a pharma mutual fund?
An SIP allows you to invest a fixed amount at regular intervals in a mutual fund scheme. Each instalment purchases units at the applicable NAV. Because the NAV can vary between instalments, you may purchase different numbers of units over time. An SIP does not remove market risk or guarantee returns.
Do pharma mutual funds offer tax benefits?
Pharma sector funds do not provide a special tax deduction merely because they invest in pharmaceutical companies. If the fund qualifies as an equity-oriented mutual fund, applicable capital gains tax rules for equity-oriented funds apply. The tax treatment depends on factors such as the holding period and the type of gain.
What factors should you consider before investing in a pharma mutual fund?
Consider the scheme's investment objective, portfolio composition, concentration, expense ratio, fund manager, risk level, historical performance, and benchmark. You should also consider your financial goal, investment horizon, and ability to tolerate fluctuations. Comparing a pharma fund with diversified equity options can help you understand the additional sector concentration involved.
What benchmark do pharma sector funds follow?
The benchmark depends on the individual scheme and is specified in its scheme documents. Sectoral funds generally use a benchmark representing the relevant sector or investment universe. You can compare a fund's performance with its benchmark to understand how it has performed against the market segment it aims to represent.
Disclaimer
Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319
BFL does NOT:
(i) provide investment advisory services in any manner or form.
(ii) carry customized/personalized suitability assessment.
(iii) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.
In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.
Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.
Disclaimer on Risk-O-Meter:
Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc, and shall also consult their Professional advisors, if they are unsure about the suitability of the scheme before investing.
Disclosure: Bajaj Finance Limited (BFL) is a distributor of Mutual Funds with ARN - 90319 and distributes mutual funds of Bajaj Finserv Asset Management Limited (BFSAMC). BFL receives commission towards distribution of mutual fund products. BFSAMC is a group company of BFL, carrying business on arm’s length basis without any conflict of interest and in accordance with the prevailing law / regulation.
Disclaimer
Bajaj Finance Limited ("BFL") is an NBFC offering loans, deposits and third-party wealth management products.
The information BFL 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.
Disclaimer
Mutual Fund SIP calculator may provide potential investors an approximate estimate on the maturity amount of the monthly SIP, purely based on mathematical calculation of the projected annual return rate selected by investor. However, such calculation does not factor the actual performance by the Asset Management Company (AMC) and should not be treated as any advice or assurance about the actual return of investment. Mutual Funds do not have a fixed rate of return and it is not possible to predict the rate of return. Please note that the SIP calculator are for illustrations only and do not represent actual returns which may vary depending on various factors including but not limited to actual performance, expense ratio, taxation, exit load (if any), etc.