Best Pharma Sector Funds to Invest in India 2023

Investing in mutual funds is one of the most convenient and effective ways to create wealth in the long run. Pharma mutual funds are a specific type of mutual fund that invests in the pharmaceutical sector. The pharmaceutical sector is one of the most critical sectors for global health and has been resilient in times of economic turmoil. The COVID-19 pandemic has also highlighted the significance of the pharmaceutical sector, with companies in this sector being at the forefront of developing vaccines and treatments.

What are sectoral pharma mutual funds?

Sectoral pharma mutual funds are a kind of mutual fund that invests in the pharmaceutical sector. These funds focus on investing in companies engaged in the pharmaceuticals, biotechnology and healthcare sectors. The main objective of sectoral pharma mutual funds is to generate long-term capital appreciation by investing in stocks of companies in the pharma and healthcare sector. These funds provide investors with exposure to a specific sector and gives them the opportunity to participate in the growth potential of the pharmaceutical sector. 

Pharmaceuticals are one of the fastest-growing sectors in India and have played a vital role in the country's economic growth. The Indian pharma sector has witnessed significant growth in recent years, and it is expected to continue its upward trajectory in the coming years. Investors looking to invest in the pharma sector can consider investing in mutual funds that invest in the sector.

Why invest in pharma sector funds?

Investing in pharma sector funds can be lucrative for several reasons. The pharmaceutical industry often exhibits strong growth potential driven by increasing healthcare needs, advancements in medical technology and demographic trends. Pharma sector funds provide exposure to a diverse range of pharmaceutical companies, offering the opportunity to capitalise on potential market outperformance. Additionally, the sector's ability to perform well during economic downturns can provide a hedge against market volatility. However, it's important to consider the risks associated with regulatory changes, patent expirations and clinical trial outcomes when investing in this sector.

Factors to evaluate the performance of pharma sector funds. 

Analysing various factors is crucial when evaluating the performance of pharmaceutical sector funds. Some key factors to consider include the fund's performance, assets under management (AUM), expense ratio, and other relevant parameters. Let's delve into each of these factors in detail:

Performance

A vital aspect to consider when assessing a pharmaceutical sector fund. Look at the fund's historical returns over different time periods, such as 1-year, 3-year, 5-year, and since inception. Compare the fund's performance against its benchmark index and other similar funds in the pharmaceutical sector. Keep in mind that past performance does not guarantee future results, but it can provide insights into the fund manager's abilities.

Assets Under Management (AUM)

The fund's AUM refers to the total value of investments managed by the fund. A higher AUM generally indicates investor confidence and can provide certain advantages, such as economies of scale and access to a broader range of investment opportunities. However, extremely large funds may face challenges in deploying capital effectively or maintaining flexibility.

Expense Ratio

The expense ratio represents the annual cost of owning the fund as a percentage of its assets. It includes management fees, administrative expenses, and other operating costs. Lower expense ratios are generally preferable as they reduce the drag on investment returns. Compare the expense ratio of the pharmaceutical sector fund with similar funds to ensure it is competitive.

Investment Strategy

Examine the investment strategy and approach employed by the fund. Understand whether it is actively managed or passively managed (index-based). Actively managed funds rely on the expertise of a fund manager or team to select specific pharmaceutical stocks, aiming to outperform the market. Index-based funds aim to replicate the performance of a specific pharmaceutical index, such as the S&P Pharmaceuticals Select Industry Index.

Portfolio Composition

Review the fund's portfolio holdings to understand its diversification and concentration. Look for a well-diversified fund that holds a range of pharmaceutical companies across different market segments and geographies. Analyse the fund's top holdings to see if they align with your investment objectives and risk tolerance.

Risk Measures

Consider risk measures such as standard deviation, beta and the Sharpe ratio. Standard deviation measures the volatility of the fund's returns. The beta indicates the fund's sensitivity to market movements. A higher beta implies greater volatility. The Sharpe ratio assesses the fund's risk-adjusted returns, considering the level of risk taken to achieve those returns. A higher Sharpe ratio indicates better risk-adjusted performance.

Fund Manager

Evaluate the experience, track record, and tenure of the fund manager or management team. A seasoned manager with a consistent performance history may inspire more confidence. Look for stability in the fund management team to ensure continuity of investment strategy and decision-making.

Fund Expenses

In addition to the expense ratio, consider other fees and expenses associated with the fund, such as front-end or back-end loads, transaction costs and redemption fees. These charges can impact your investment returns, so it is important to be in the know for them.

Fund size and liquidity

Assess the fund's size and liquidity. While a larger fund may offer advantages, ensure that it does not compromise the manager's ability to enter or exit positions efficiently. Illiquidity in the fund could impact its performance and your ability to redeem shares as and when needed.

Remember that investing in pharmaceutical sector funds carries inherent risks, such as regulatory challenges, drug development failures or shifts in healthcare policies. It is essential to thoroughly research and understand the risks associated with the sector and the fund before making investment decisions. Consult with a financial advisor for personalised advice based on your specific investment goals and risk tolerance.

We glance at the best pharma mutual funds to invest in 2023. After analysing various factors, such as the performance of the fund, the fund's assets under management (AUM), the expense ratio and other parameters, here are some of the best pharma mutual funds to invest in 2023.

1. Aditya Birla Sun Life Pharma & Healthcare Fund

An open-ended equity mutual fund which is also one of the top pharma mutual funds. The fund has a diversified portfolio of stocks and has consistently generated good returns over the long term. The fund's expense ratio is 2.19%, which is slightly on the higher side but reasonable for an actively managed fund.

2. SBI Healthcare Opportunities Fund

The fund has a diversified portfolio of stocks, and its top holdings include stocks like Dr. Reddy's Laboratories, Sun Pharma and Divi's Laboratories. The fund's expense ratio is 2.16% which is slightly higher but reasonable for an actively managed fund.

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

An open-ended equity mutual fund that invests in the pharma, healthcare and diagnostics sectors. The fund's portfolio includes stocks of companies in the pharmaceuticals, biotechnology and diagnostics sectors. The fund's top holdings include stocks like Dr. Reddy's Laboratories, Cipla and Lupin. The fund has consistently generated good returns over the long term and has a relatively low expense ratio of 1.85%

4. UTI Healthcare Fund

This fund aims to generate long-term capital appreciation and includes stocks of companies like Sun Pharma, Dr. Reddy's Laboratories and Cipla. The fund has consistently generated good returns over the long term and has a relatively low expense ratio of 1.85%

5. Nippon India Pharma Fund

An open-ended equity mutual fund that invests in the pharma and healthcare sector. The fund's portfolio includes stocks of companies engaged in the pharmaceuticals, biotechnology and healthcare sectors. The fund's top holdings include stocks like Sun Pharma, Dr. Reddy's Laboratories and Divi's Laboratories. The fund has consistently generated good returns over the long term and has a relatively low expense ratio of 1.97%

6. Franklin India Pharma and Healthcare Fund

Aims to generate long-term capital appreciation by investing in stocks of companies in the pharma and healthcare sector. The fund has a diversified portfolio of stocks and has consistently generated good returns over the long term. The fund's expense ratio is 2.34% which is slightly on the higher side but reasonable for an actively managed fund.

7. Tata India Pharma & HealthCare Fund

Tata India Pharma & HealthCare Fund aims to provide long-term capital appreciation by investing in equity and equity-related instruments of companies engaged in the pharma and healthcare sector. The fund's portfolio includes stocks of companies like Sun Pharma, Dr. Reddy's Laboratories, and Cipla. The fund has consistently generated good returns over the long term. Its direct-growth plan has a relatively low expense ratio of 1.61%  Investors should do their due diligence and assess their risk tolerance before investing. 

8. DSP Healthcare Fund

A top performing sectoral pharma mutual fund that has been experiencing long term capital appreciation. The fund's portfolio includes stocks of companies engaged in the pharmaceuticals, biotechnology and healthcare sectors. The fund has consistently generated good returns over the long term, and its expense ratio is 1.94% which is reasonable for an actively managed fund.

9. Mirae Asset Healthcare Fund

Aims to provide long-term capital appreciation by investing in stocks of companies engaged in the healthcare and allied sectors. The fund's portfolio includes stocks of companies like Sun Pharma, Dr. Reddy's Laboratories and Biocon. The fund has consistently generated good returns over the long term. Its expense ratio is 2.16% which is reasonable for an actively managed fund.

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    IDBI Healthcare Fund

Invests in equity and equity-related stocks of companies engaged in the healthcare sector. The fund's portfolio includes a diversified stock. The fund has consistently generated good returns over the long term. Its expense ratio is 2.3%, which is reasonable for an actively managed fund.

Conclusion

Investors should note that investing in sectoral-pharma mutual funds involves market risk. Past performance is not indicative of future results. While the above-mentioned funds have a good track record, investors should do their independent research and assess their risk tolerance before investing.

The best pharma mutual funds can provide a good investment opportunity for investors looking to invest in the pharmaceutical sector. While the funds mentioned here are some of the best options available to invest in 2023 in India, investors are advised to consult with their financial advisor and assess their independent risk appetite before making any investment decisions.