Pharma and Healthcare Funds Lead in 2024: Should You Invest More?

Pharma and Healthcare Funds Lead in 2024: Should You Invest More?

Pharma and healthcare sector mutual funds have topped returns in 2024, delivering up to 44% gains so far this year. The main question for investors now is whether increasing allocations to these funds could be a smart strategic move.

Financial experts suggest that an allocation of 10-20% in pharma and healthcare funds can be quite rewarding for investors with a moderate-to-long-term horizon. In the long run, the demand for healthcare is likely to increase due to factors such as an aging population, the rise of lifestyle-related diseases, and advances in medical technology. These elements support the potential for solid returns in the sector.

So far in 2024, pharma and healthcare funds have averaged around 37.20% returns across 13 schemes. Notably, three funds in this category delivered returns over 40% for the year. HDFC Pharma and Healthcare Fund led the group with a 43.77% return, followed closely by ICICI Pru Pharma Healthcare & Diagnostics (P.H.D) Fund at 42.49% and LIC MF Healthcare Fund at 40.85%. Other sector-specific performances include Tata India Pharma & Healthcare Fund and Mirae Asset Healthcare Fund, with returns of 35.71% and 35.66%, respectively. Quant Healthcare Fund and Kotak Healthcare Fund followed with 34.65% and 34.04%, respectively, while Aditya Birla SL Pharma & Healthcare Fund and Nippon India Pharma Fund delivered returns of 33.21% and 30.90%, respectively.

The strong performance of pharma and healthcare funds can be attributed to several factors. As other sectors experienced corrections, healthcare proved resilient, emerging as a defensive play during uncertain economic times. In the Indian market, the pharmaceutical sector has shown steady domestic growth, driven by stable pricing and robust demand. Indian healthcare companies have also benefitted from steady pricing in international markets, boosting earnings. Additionally, increased disease awareness and a rising demand for healthcare services, especially in hospitals, have further bolstered this sector’s performance.

Pharma and healthcare funds are benchmarked against indices like the BSE Healthcare – TRI, Nifty Healthcare Index – TRI, and NIFTY PHARMA – TRI, which have returned 40.51%, 36.61%, and 36.68%, respectively, in 2024. Among the 13 funds in this category, only four outperformed their respective benchmarks, while nine lagged behind.

Experts recommend a cautious approach to this sector, considering some pharma and healthcare funds recently underperformed compared to their benchmarks. For interested investors, a gradual investment approach is advised, such as an initial allocation of 10-15% to pharma and healthcare funds, with the option to add more over time. This phased strategy, or “adding in tranches,” helps investors avoid buying at market highs and can allow them to capitalize on market dips.

Over the past year, these funds have yielded an average return of approximately 58.49%, with some reaching as high as 65.26%. HDFC Pharma and Healthcare Fund led with a 65.26% return, followed by LIC MF Healthcare Fund at 62.38% and UTI Healthcare Fund at 59.27%. Aditya Birla SL Pharma & Healthcare Fund and Nippon India Pharma Fund also performed well, returning 53.34% and 51.11%, respectively.

Looking ahead, the outlook for pharma and healthcare funds remains positive, supported by steady demand for healthcare services, growing health awareness, and strong performance in both domestic and global markets. However, experts caution investors to keep an eye on valuation levels and economic factors that could impact the sector’s defensive positioning.

Sector-specific funds, such as those in pharma and healthcare, are generally recommended for aggressive investors who can handle higher risk and volatility. New or inexperienced investors should approach these funds cautiously, while those with larger portfolios might consider sector funds for diversification. For such investors, a 5-10% allocation to sector-specific funds like pharma is advisable. More experienced investors may also consider making tactical investments in this sector.