Maximising returns from various mutual funds can happen in countless ways. One popular way is to invest in sectoral funds that seem to be or have the potential of performing well now or in the future. Sectoral funds are basically mutual funds that invest in stocks of various securities, all belonging to the same sector (infrastructure, entertainment, etc.).
Pharma funds are a type of sectoral funds that invest in the sector of pharmaceutical companies. With the COVID-19 pandemic not planning to end anytime soon, the pharmaceutical industry has been thriving and thus pharma funds have started to gain massive momentum.
Sectoral funds can be highly rewarding in bull markets but might perform poorly in bear markets. The drop might seem massive if the sector as a whole gets affected heavily. And naturally, since holding onto your investments increases the protection against volatility, the key is to invest long-term.
With that being said, we are now going to cover everything you need to know before investing in pharma funds starting from a list of top-performing funds to factors involved, advantages, target investors, and taxability. By the end of this article, you will have the confidence to boldly invest in pharma funds.
|Fund Name||1 Year Returns||Expense Ratio||Consistency of Returns|
|Nippon India Pharma Fund||34.35||1.04||Moderate|
|Tata India Pharma & Healthcare Fund||30.64||1.08||Moderate|
|UTI Healthcare Fund||29.59||1.15||Low|
|ICICI Prudential Pharma Healthcare & Diagnostics (P.H.D) Fund||31.75||1.18||High|
|Mirae Asset Healthcare Fund||35.08||0.52||Very High|
Since these types of thematic mutual funds focus highly on investing in the equities of large companies, they possess a high-risk factor. People with a high-risk appetite who want to capitalize on returns can invest in pharma funds. These funds generally tend to outperform the benchmarks when the sector is performing well. On the other hand, however, when the sector takes a hit, the losses can be magnified. This can be handled by investing long-term in a particular pharma fund. Risk-averse investors are advised to stay away from such funds.
The first and foremost thing an investor needs to do is analyze their investment goals which can be extremely helpful in investing wisely. This includes determining the risk tolerance, investment horizon, and long-term profit plans. It’s important to not let the financial objectives of other investors get to you. Comparing investment goals will only lead to confusion and rookie investing errors. Map out your investment goals and focus only on your portfolio.
With that being said, pharma funds are not advisable for people who have a low-risk tolerance. These types of funds are high-risk-high-reward type and If you’re someone who is willing to take more risks in exchange for greater returns, investing in pharma funds would be a wise choice. Experienced investors who know how the market trends vary and know when particular sectors will flourish can invest in pharma funds with confidence. Beginner investors, however, might need the help of a financial advisor.
Expense ratio is the fund houses imposing a fee on investors to handle all the administrative expenses they undertake. These are generally a small percentage of the assets of the scheme. Analyzing the expense ratios of various funds and the fund you’re choosing is extremely important when it comes to equity sectoral funds like pharma funds. This is because, while the returns are great, the greater expense ratios you give, the greater impact it will have on your overall returns. Having the expense ratio in mind is crucial to not result in a less-than-desired return. They can also be monetarily huge.
When it comes to high-risk funds like pharma funds and other thematic mutual funds, the consistency of returns plays a vital role in how a fund performs on a gross level. Since the returns are considerably higher than other fund schemes, choosing a fund that has a highly consistent returns rate can certainly boost your portfolio.
Analyzing the historic trends of a mutual fund before investing in it can give you meaningful insights as to how the said fund is going to perform in the future. A fund that was able to meet the goals set in the past is more likely to perform well in the future too. Determining the selected fund’s historical returns and comparing them with other similar mutual funds in the market will also help give you better clarity.
Sectoral funds and pharma funds as a subset of those are essentially a class of equity funds. Thus, these follow the same tax structure as other equity funds.
The capital gains earned on exit within 1 year are treated as Short Term Capital Gains (STCG) and are taxed at 15%.
If an investor holds investments for more than a year, the gains are classified as Long Term Capital Gains (LTCG) and are free if the profits fall under Rs. 1 Lakh, but taxed at 10% if the gains exceed Rs.1 Lakh. There are no indexation benefits – the adjustment of the purchase price according to inflation.
10% TDS (Tax Deducted at Source) is deducted on dividends exceeding Rs.5,000 earned.
Since these funds are high-risk-high-reward, bull markets can fetch significant returns for pharma mutual funds. Growth of a particular sector can guarantee even higher returns and these types of funds are perfect for wealth multiplication within a time horizon of approximately 3 years.
Pharma mutual funds are sectoral and investing in such funds is guaranteed to improve the sector as well. This also indirectly helps in the growth of the nation’s economy. Conversely, certain government policies may also affect pharma mutual funds heavily. The right timing of entry and exit from these funds is crucial to capitalise on the returns and for this, the investors need to be experienced or have financial advisors who help them.
We have now covered everything you as an investor need to know before investing in pharma funds – best performing funds, factors to consider before investing, advantages of investing in pharma funds, taxability, and target investors. You can now invest in these funds with confidence as there’s nothing more to analyse. It is, however, recommended to seek help from a financial advisor if you’re a beginner in investing to navigate through the markets smoothly.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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