Personal Finance

Should You Invest In Pharma Mutual Funds?

June 10, 2020

Should You Invest In Pharma Mutual Funds?

Each time when you pop a pill, you might wonder about the economics that would have gone behind it. In fact, the pharma sector in India presents a mixed bag of opportunities and challenges that makes it worth exploring. The rising demand for medicines and individuals’ expanding healthcare budgets reflects its immense potential to grow in the future. However, regulatory pressures require it to tread with more caution.

It would be great if you can leverage its potential to grow wealth for your goals. Pharma Mutual Funds give you an opportunity to cash in on the emerging pharma sector in India. It, therefore, becomes important to know how these funds work.

What Are Pharma Mutual Funds?

Pharma Mutual Funds are sectoral schemes that invest largely in equity shares and equity-related options of companies engaged in the pharma and healthcare sector. These funds may allocate some of their assets in debt and money market instruments. Generally, the top fund holdings constitute market leaders like Sun Pharmaceuticals, Dr. Reddy’s Labs, Cipla Ltd., Lupin Ltd., and Aurobindo Pharma Ltd. among others.

The fund manager actively increases/decreases the fund’s stock allocation to suit the changing market conditions. S&P BSE Healthcare TRI and NIFTY Pharma TRI are the commonly used benchmarks against which these funds measure their performance. As and when the prices of pharma stocks rise, the fund NAV goes up to multiply your invested capital. At Paytm Money, you can start investing in Pharma Mutual Funds with an SIP of as little as Rs 100.

Things To Look For Before Investing In Pharma Mutual Funds

Indian pharma sector fulfills around half of the world’s vaccine and over 80% of global demand for retroviral drugs. This puts it in a strategic position both from a domestic and global standpoint. Here are a few things that you need to consider before investing in these funds.

Investment Objective

These funds aim to harness the growth potential of the pharma industry to accumulate wealth over the long run. The fund manager selects stocks based on a company’s track record, sound management, growth prospects, and overall industry scenario. Efforts are made to keep the portfolio diversified within the pharma sector to keep the risk at optimal levels.

The Upside

The pharma industry might grow on the back of government initiatives to promote pharma sector, rising demand for healthcare along with product innovation. Also, a strong dollar and pharma companies’ cost-efficiency drive may improve their earnings in the years to come. The continuously rising pharma indices indicate the sector’s revival amidst the COVID crisis. On the whole, Pharma Mutual Funds might shine in the future on the backdrop of these developments.

The Downside

The fund’s portfolio focuses mainly on the pharma sector that makes it a high-risk investment option. Also, the fund returns may fluctuate due to changes in the underlying stock prices. Hence, investors may also consider broad-based factors like prevailing industry trends, the fund manager’s track record, and portfolio composition before investing in the fund.

Suitability

Aggressive investors who have a basic understanding of the sector might find these funds suitable. These funds may be looked upon if one plans to diversify his/her overall portfolio and plans to stay invested for a long term horizon. In a nutshell, you should identify your risk profile first and take an informed decision accordingly. If you are not aware of your risk profile, take this simple risk assessment test on the Paytm Money app.

Asset Allocation

A limited diversification makes these funds less suitable to be the core of your portfolio. Try to allocate a minimal amount to these funds.

How To Invest In Pharma Mutual Funds?

Assigning a small part of your portfolio to these funds may help you to take benefit of the pharma sector’s growth. At Paytm Money, you get to invest in the fund in a few simple steps.

Step 1: Download the Paytm Money app to complete your KYC & become investment-ready instantly.

Step 2: On the home screen of the App, scroll down and tap on the ‘Equity Funds’ icon.

Step 3: On the Equity Mutual Funds page, scroll category bar to the left and tap on the ‘Pharma’ category.

Step 4: Select the Pharma Mutual Fund of your choice and ‘Invest Now’ via SIP or the Lump-sum mode and enter the amount of investment. Tap on ‘Proceed to Payment’.

Step 5: Make payment using UPI, Netbanking, or by setting an Auto Pay with your bank for automatic deduction of your payments. Tap again on ‘Proceed to Payment’ to complete the transaction.