Pharma mutual funds are a type of sector-specific mutual fund that primarily invests in the pharmaceutical and healthcare industry. These funds focus on companies involved in the production of drugs, biotechnology, diagnostics, healthcare services, and medical devices. The aim is to provide investors with exposure to the potential growth of the healthcare and pharmaceutical sectors.
There are 8 top Pharma Sector Mutual Funds in India, they are arranged on the basis of their 1-year return in the following manner:
Top 8 Pharma Mutual Funds with 1-year Return
| S. No. | Name of the Fund | 1 Yr return (%) | TER (%) | Fund House |
|---|---|---|---|---|
| 1 | HDFC Pharma & Healthcare Growth Direct Plan | 51.31 | 0.92 | HDFC Mutual Fund |
| 2 | ICICI Prudential Pharma Healthcare & Diagnostics | 47.53 | 1.09 | ICICI Prudential Mutual Fund |
| 3 | ITI Pharma & Healthcare Growth Direct Plan | 43.83 | 0.47 | ITI Mutual Fund |
| 4 | Tata India Pharma & Healthcare Growth Direct Plan | 42.18 | 0.69 | Tata Mutual Fund |
| 5 | Aditya Birla Sunlife Life Pharma & Healthcare Growth Direct Plan | 37.32 | 0.93 | Aditya Birla Capital Mutual Fund |
| 6 | Nippon India Pharma Bonus Bonus Growth Direct Plan | 34.98 | 0.91 | Nippon India Mutual Fund |
| 7 | Nippon India Pharma Growth Direct Plan | 34.98 | 0.91 | Nippon India Mutual Fund |
| 8 | Whiteoak Capital Pharma & Healthcare Growth Direct Plan | NA | 0.69 | Whiteoak Capital Mutual Fund |
Source: Kuvera; December 29, 2024
Key Observations from the table are as follows:
1. Best Performer
HDFC Pharma & Healthcare Growth Direct Plan with a 1-year return of 51.31%, which is the highest in this list.
2. Lowest Expense Ratio
The ITI Pharma & Healthcare Growth Direct Plan has the lowest TER (Total Expense Ratio) at 0.47%, making it a more cost-effective choice.
3. High Expense Ratios
Some funds like ICICI Prudential Pharma Healthcare & Diagnostics have a TER of 1.09%, which is relatively higher than the others.
4. Whiteoak Capital Pharma
This fund doesn’t report a 1-year return in the provided data but has a moderate TER of 0.69% as it has been recently launched and provides only 1 day’s data as on December 29, 2024.
These funds showcase a range of performances, with HDFC Pharma & Healthcare leading in returns, while ITI Pharma & Healthcare stands out in terms of lower expense ratios, which might benefit long-term investors due to lower fees.
Along with the Pharma sector funds, there are various prominent funds in the Healthcare domain such as UTI Healthcare Growth Direct Plan, IDBI Healthcare Growth Direct Plan, LIC Healthcare Growth Direct Plan, DSP Healthcare Growth Direct Plan and Kotak Healthcare Growth Direct Plan.
India’s pharmaceutical industry is undergoing a significant transformation, shifting from being a global leader in generics to focusing more on innovation, biotechnology, and research-driven drug development. With advancements in technology, such as AI, blockchain, and biotechnology, India is enhancing drug discovery, improving manufacturing processes, and ensuring greater transparency in the supply chain. The country’s growing emphasis on biosimilars, personalized medicine, and digital health solutions is helping it compete globally in biotechnology and pharmaceuticals. Despite challenges like intellectual property concerns, regulatory hurdles, and quality control, India’s pharmaceutical sector is positioning itself for continued growth, aiming to provide affordable healthcare domestically while becoming a key player in the global healthcare ecosystem. (IBEF – Pharmaceuticals, National Health Policy 2017, Pharmexcil Official Website, Frost & Sullivan Pharma Trends and McKinsey Healthcare Insights).
According to The Economic Times, the healthcare sector’s long-term growth potential, driven by rising demand, lifestyle diseases, and medical advancements, makes it an attractive investment. Abhishek Jain, Head of Research at Arihant Capital, suggests a 10-20% strategic allocation in pharma and healthcare funds for investors with a moderate-to-long-term horizon. In 2024, these funds have delivered impressive returns, with some reaching up to 44%, while the category’s 13 funds collectively averaged a return of approximately 37.20%.
Hence, the benefits of investing in Pharma Sector Funds can be described as follows:
1. Growth Potential
India has a large and growing pharmaceutical market, which is one of the largest in the world. As a key supplier of generic drugs globally, the sector holds considerable growth prospects. Pharma mutual funds allow investors to tap into this growth.
2. Diversification
For investors looking to diversify their portfolio, pharma mutual funds offer an easy entry into a sector that is relatively unaffected by the volatility of traditional sectors like manufacturing or infrastructure. It adds an extra layer of stability.
3. Defensive Nature
The pharmaceutical sector is often considered a defensive sector because the demand for healthcare products tends to remain steady even during economic downturns. This makes pharma mutual funds an attractive option for risk-averse investors.
4. Rising Healthcare Demand
As India’s population continues to grow and age, the demand for healthcare products and services increases. This trend is expected to drive the growth of the pharmaceutical sector, making pharma mutual funds an appealing investment.
Following factors must be considered before investing in the Pharma Sector Funds:
1. Regulatory Risks
The pharmaceutical sector is highly regulated, and changes in government policies, pricing regulations, or patent laws can significantly impact the profitability of pharmaceutical companies.
2. Market Volatility
While the pharmaceutical industry is considered defensive, it is still subject to market fluctuations, such as stock market cycles or specific company challenges, including drug recalls or regulatory failures.
3. Currency Fluctuations
Since many pharmaceutical companies in India export their products, the sector is vulnerable to currency fluctuations. Changes in the value of the Indian Rupee can affect the profitability of these companies and, in turn, the mutual fund’s performance.
4. Competition and Innovation
The pharmaceutical sector faces intense competition, both from domestic and international players. Additionally, constant innovation is required to stay competitive. Failure to develop new drugs or treatments can negatively affect fund performance.
5. Drug Approval Risks
The approval process for new drugs can be lengthy and uncertain. Any delays or rejections in drug approvals can significantly impact the revenue and stock prices of pharmaceutical companies.
6. Concentration Risk
Many pharma mutual funds may concentrate their investments in a few large-cap pharmaceutical companies, which can expose investors to risks if those companies face significant challenges.
In summary, pharma mutual funds in India can provide opportunities to benefit from the growth of a vital and expanding sector, but they also come with risks related to regulation, competition, market fluctuations, and drug development. Investors need to carefully weigh the benefits against these challenges when considering such funds.
Wrapping Up
To sum up, it can be stated that pharma-based mutual funds can be significant for both diversification and growth, especially for investors seeking exposure to essential, long-term projects. The strong 1-year returns across various fund houses illustrate the sector’s growth potential. By analysing the TER and returns, investors can make informed decisions about which funds align with their financial goals and risk appetite.
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