Why Should You Invest in a Healthcare Fund?

Published On: 04-Nov-2020

Mutual funds provide a broad spectrum of investment options to the investors, wherein they may choose to invest depending on their financial goals, investment horizon, and risk appetite. While different mutual fund schemes may define the broad investment categories, sectoral and thematic funds provide focused investment exposure to the investors towards specific sectors/ themes. Such funds allow investors to capitalise on the investment opportunities within that sector. 

One of the sectors expected to perform well over the long term is the healthcare sector as the focus has shifted to the industry due to the recent pandemic outbreak. While the industry will also pave its way for the vaccine, awareness about preventive healthcare has also increased. 

Sub-categories within the Healthcare Sector

While the pharma theme was the only exciting investment opportunity within the healthcare sector till a few years back, the listing of companies across other themes within the industry like diagnostics, hospitals, etc. has expanded the investible universe for the investors as well. Within the broader sectoral theme for healthcare, one can aim to invest across several sub-categories, viz. pharma, hospitals, diagnostics, etc. 

The pharma sector refers to the companies involved in the research and development of medicines. For the hospitals, the companies involved in health management can be covered in this sub-category. The increasing awareness about preventive health checks is expected to re-rate the companies operating in the diagnostics field. 

Why does it make sense to invest in the healthcare sector now?

The healthcare sector has been an underperformer against the benchmark markets over the past few years. This may have happened due to various reasons, including FDA observations, etc. However, this has also helped the sector stay at reasonable valuations against the overall markets. 

It may be possible that most of these concerns may have already been addressed as well. As such, the sector may be standing at an inflection point, aiming to turnaround with exciting opportunities in the dynamic economic environment. 

With the negatives factored into the valuations, the investors can expect reasonable returns from such funds going ahead. Healthcare is one of the sectors perceived as defensive sectors, which tend to be resilient to deep market corrections. This is because the sector's demand cannot fade away wholly as these are one of the non-discretionary spending within the overall budgets.

Additionally, India has one of the lowest medical spends as a percentage of GDP. However, such healthcare spend is expected to increase. This is because people are willing to pay for better medical services once they can afford such services. Further, the awareness about staying medically fit and preferences towards preventive check-ups provide another expansion opportunity for the companies operating in the sector. 

The Govt's continued focus on better medical facilities has also been clear, as it has launched several policy initiatives around the sector, including the National Health Policy Mission, etc. As the country steers through the Covid-19 crisis, the healthcare sector is expected to be the torchbearer of the 'Aatmnirbhar Bharat' call and staying vocal towards the local. 

The current crisis curtains will only be pulled down once there is a meaningful development towards faster detection of the infected cases and vaccine creation. Investors must consider staying invested in the healthcare sector and have a focused investment exposure through health funds.