Pharma, health sector mutual funds bring a return of 44% in 2024. Should you increase allocation?

A mutual fund expert believes that a strategic allocation of 10-20% to pharma and healthcare funds can benefit investors in the medium to long-term investment period because long-term care needs of life are increasing due to various reasons give solid incomes.

“In the long run, as the demand for health care increases due to demographic changes, lifestyle diseases and advances in medical technology, the sector can provide solid returns. Strategic distribution of 10-20% in these funds can benefit investors with moderate to long investment horizons,” said Abhishek Jain, Head of Research, Arihant Capital.

The joint ventures of the Pharma and healthcare sector have contributed around 44% by 2024 to date. There were about 13 funds in the group which in total gave a profit of about 37.20% during the mentioned period.

Three projects in this category have delivered returns of over 40% this year so far. HDFC Pharma and Healthcare Fund, the leader in this category, has yielded 43.77% by 2024 to date. ICICI Pru Pharma Healthcare & Diagnostics (PHD) Fund and LIC MF Healthcare Fund contributed 42.49% and 40.85% respectively during the said period.

Tata India Pharma & Healthcare Fund and Mirae Asset Healthcare Fund gave 35.71% and 35.66% returns respectively during the said period. Quant Healthcare Fund gave 34.65%, followed by Kotak Healthcare Fund which gave 34.04% during the same period.

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Aditya Birla SL Pharma & Healthcare Fund and Nippon India Pharma Fund contributed 33.21% and 30.90% respectively during the said period.

Wondering what is driving the strong performance of the pharmaceutical and healthcare industry in 2024?

This expert relates this process to several factors. First, while other sectors were adjusting, the health care sector remained intact. Second, the sector has shown steady growth in the domestic market driven by stable prices and strong demand.

“This remarkable performance can be attributed to several factors. First, while other sectors faced restructuring and economic problems, the health care sector remained strong. The decline in productivity and “challenges in the financial services sector have encouraged investors to seek refuge in defensive plays like healthcare, which are often unresponsive to the broader economy,” Jain said.

“Furthermore, the Indian pharmaceutical sector has shown steady growth in the domestic market, thanks to stable prices and strong demand. Globally, Indian healthcare players have benefited from stable in international markets, which has helped to maintain earnings. In addition, the increase in disease awareness and demand for health care services, especially in the hospital segment, has driven growth within the sector, “he added.

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Pharma and healthcare stocks benchmarked against BSE Healthcare – TRI, Nifty Healthcare Index – TRI, and NIFTY PHARMA – TRI have risen by 40.51%, 36.61%, and 36.68% respectively in 2024 to date.

Out of the 13 plans in the group during the mentioned period, only four funds succeeded in exceeding their benchmarks and nine funds failed to exceed their benchmarks.

After seeing the current lackluster performance of pharma and healthcare funds, should one invest in these funds? What distribution should be considered?

According to the expert, investors should proceed with caution according to the current values ​​and giving 10-15% of one’s income to pharma and health care funds would be wise, with other contributions considered in time.

“While the pharmaceutical and healthcare sectors show promising long-term prospects, investors should proceed with caution given current valuations. These funds have seen significant gains, and rates may not be very comfortable at this time. However, a gradual approach is recommended if an investor is willing to enter this sector,” advises Jain.

He further adds, “Allocating 10-15% of one’s portfolio to pharma and healthcare funds would be wise, with more added over time. This phased allocation strategy, and also known as “increasing tranches,” it allows investors to profit from the market, reducing the risk of entry at high prices.

Last year, these schemes gave an average return of 58.49% with payouts reaching 65.26% over the same period. HDFC Pharma and Healthcare Fund topped the return chart and gave 65.26% return last year. LIC Healthcare Fund MF gave 62.38% return, followed by UTI Healthcare Fund which gave 59.27% ​​during the same period.

Aditya Birla SL Pharma & Healthcare Fund and Nippon India Pharma Fund gave 53.34% and 51.11% respectively last year.

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After looking at past performance, are you wondering if these funds will perform the same way? What are these financial considerations?

The outlook for the pharmaceutical and healthcare sector remains positive. The industry is expected to continue to provide steady growth, driven by continued demand for health services, increasing awareness of health care, and strong performance in both the domestic market and of the world. However, investors should monitor the quality levels and economic indicators that may affect the security position of the sector,” said Jain.

Sector schemes, including pharma funds, are recommended only to aggressive investors who can take significant risks and tolerate volatility. Investors should also keep in mind that these projects can be labor intensive for a long time.

We do not recommend pharma funds to new or inexperienced investors. Investors with a large corpus can use these schemes to diversify their portfolio. However, such investors should invest only 5-10% of their total in sector projects like pharma. Investors with good knowledge can also make smart investments.

(Freedom: Suggestions, suggestions, opinions and opinions given by experts are their own. (These do not represent the views of The Economic Times)

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