Why to start investing in Pharma funds in 2021?

Ever since the Coronavirus pandemic hit India in March 2020, the stock market went into a tizzy. Stocks of major companies were experiencing a downfall, and during such uncertain times, the pharmaceutical sector saw some favourable growth. And as prevailing sentiments have the tendency to influence the stock market, experts opined that quite a few pharma mutual funds showed tremendous growth in the mutual fund schemes.

In fact, with the COVID-19 vaccination drive in full swing and newer vaccines being in the pipeline for children and against new variants, the pharma sector could have a good growth potential over the next several years, positively impacting the performance of sector-specific funds.

What are pharma mutual funds?

Pharma mutual funds are equity-oriented, sectoral mutual funds. They invest at least 80% of their portfolio in equity stocks and securities of pharmaceutical companies, as mandated by the Securities and Exchange Board of India (SEBI). Therefore, a pharma fund is a sector-specific fund focused on the pharma sector.

Portfolio composition of pharma mutual funds

Pharma mutual funds have actively managed portfolios wherein the fund manager chooses stocks of companies across all market capitalisations. This means that the fund manager invests in stocks of large-cap, mid-cap, and small-cap companies to create a diversified portfolio.

Why invest in pharma mutual funds in 2021?

  • Scope of growth

As per the recent Indian Economic Survey 2021 by the Ministry of Commerce and Industry, the domestic pharma market is expected to grow three times in the coming decade of 2030. The domestic market is estimated at around US $42 billion in 2021 and is expected to grow up to US $65 billion by 2024. With the sector poised for growth, it is a good opportunity for you to invest in the sector.

  • Attractive returns

As the pharma sector grows, you could earn attractive returns on your portfolio if you invest with a long-term horizon. However, you need to note that since these funds invest majorly in equity, an attractive rate of return comes with a higher degree of risk.

  • Portfolio diversification

Adding pharma funds to your portfolio helps you diversify across sectors. Moreover, with the pharma fund offering diversification across market caps, your portfolio can boast of quality stocks that have the potential to grow.

Are pharma mutual funds for you?

Though the pharma sector is a growing sector with the potential to deliver attractive returns in the coming years, these funds are volatile in nature. Therefore, these sectoral funds could be ideal for investors who are not averse to taking risks.

In fact, for any mutual fund investment, risks and returns have a direct correlation. If you are looking for investment options that suit your tolerance for risk, you could always explore your options through a financial expert.