The pharma and healthcare mutual funds have performed exceptionally well in 2024, with an average return of around 44% year-to-date. This sector has shown resilience compared to other sectors, making it an attractive option for investors seeking stability.
The strong performance can be attributed to stable pricing, robust demand, and increased awareness of healthcare needs. Several factors have contributed to the strong performance of pharma and healthcare funds in 2024. The sector's resilience during corrections in other industries has attracted investors looking for stability. Additionally, the Indian pharmaceutical sector has experienced steady growth in the domestic market, supported by stable pricing and robust demand. This growth is further enhanced by increased disease awareness and a rising demand for healthcare services.
HDFC Pharma and Healthcare Fund, ICICI Pru Pharma Healthcare & Diagnostics Fund, and LIC MF Healthcare Fund have emerged as leaders in terms of returns. The performance of pharma and healthcare funds has outpaced their benchmarks, with the BSE Healthcare - TRI, Nifty Healthcare Index - TRI, and NIFTY PHARMA - TRI showing increases of 40.51%, 36.61%, and 36.68%, respectively, in 2024. However, out of the 13 schemes in this category, only four have managed to outperform their respective benchmarks, indicating that while the sector is strong, not all funds are equally positioned to capitalize on market trends.
Despite the impressive returns, experts advise a cautious approach to investing in this sector. Current valuations may not be favorable, prompting recommendations for a phased allocation strategy. Investors are encouraged to consider allocating 10-15% of their portfolios to pharma and healthcare funds, with the possibility of increasing this allocation over time. This strategy, often referred to as "adding in tranches," allows investors to mitigate risks while capitalizing on potential market dips.
The long-term outlook for the pharma and healthcare sector remains positive, driven by ongoing demand for healthcare services and advancements in medical technology. Experts suggest that a strategic allocation of 10-20% in these funds could benefit investors with a moderate to long-term investment horizon. However, investors should remain vigilant regarding valuation levels and economic indicators that could impact the sector's defensive positioning.
Investors are advised to approach these funds with a well-informed strategy, particularly those with a large corpus looking to diversify their portfolios. While the potential for solid returns exists, the inherent risks associated with sector-specific investments necessitate a careful evaluation of individual risk profiles and investment goals.