The pharmaceutical sector has witnessed immense growth in the last year. With the coronavirus pandemic taking over, healthcare took the centre stage boosting its fortunes. As a result, pharma mutual funds have generated great returns for investors.
However, thematic funds like this carry high risk as they put money in a single sector. So should you invest in pharma mutual funds (MFs) or not?
To help you decide, we provide you with some tips along with the pros and cons of investing in pharma funds.
Tips for investing in pharma mutual funds
Before you put money into these schemes, keep the following tips in mind:
Pharma MFs invest around 80% of their assets in the pharma industry. Their sector-linked performance is cyclical and you may witness high fluctuations. So, you should invest only if you have a high-risk profile.
Put money in pharma funds only if you aim for a long-term investment.
You can invest in pharma MFs through a Systematic Investment Plan (SIP). This allows you to spread your investment over time in a disciplined manner.
As a regular investor, you can take a calculated risk of investing in these funds if you have sufficient knowledge of the pharma sector. Typically, sophisticated or rich investors use these schemes as a diversification tool.
Pros of investing in pharma MFs
Pharma MFs focus on one sector. You can consider the current market conditions and the high demand for medicines and vaccines. Thus, these schemes can offer high returns if the healthcare and pharmaceutical industries perform well.
These funds place money in the stocks of pharma firms across market capitalisation. This offers you the potential to get more returns as against the benchmark index.
It’s better for many investors to invest in pharma MFs, rather than directly buying pharma stocks. This is because a dedicated fund manager oversees all the trading activities. So, you don’t have to watch the market all the time.
In case your portfolio lacks exposure to the healthcare sectors, you can invest in pharma mutual funds to diversify it.
Cons of investing in pharma MFs
Perhaps the biggest disadvantage of pharma MFs is high volatility. Placing all your funds in a single industry is risky. You may incur huge losses if the pharma sector underperforms.
Pharma MFs might have a higher expense ratio, i.e the measure of a fund’s operating expenses relative to the assets under management (AUM).
You are invested in a single sector, i.e. Pharma. So, you may lose considerable money if you don’t exit the fund at the right time.
There is no option of diversifying your instruments.
With the help of the above info, you can easily decide whether you should go for pharma MFs or not. You must assess your risk profile and investment objectives before making a choice. Besides, it has become very easy to invest in mutual funds online.
Just use your smartphone, compare all kinds of thematic funds, analyse their performance and invest smartly. There are many investment apps like moneyfy app that make the process a lot smoother. So, start investing for a better future today.