SBI Pharma Fund vs Reliance Pharma Fund: Which fund is better to invest in?

SBI Pharma Fund

SBI Pharma Fund has been renamed to SBI Healthcare Opportunities Fund. It aims to provide the opportunity of long term capital appreciation by investing in a diversified portfolio of equity and equity-related securities in Healthcare space. The fund gave 14.93% return (annualized) since its inception in July 1999. The funds 1, 3 and 5-year annualized returns are 0.03%, -4.12%, and 8.36%. The fund’s 5-year return is ahead of its category and benchmark by 1 percentage point. The fund follows a bottom-up approach to stock-picking and chooses companies within the healthcare space. The fund has around 20 stocks in its portfolio spread across large (64%), mid (18%) and small cap (18%) companies. The top 5 holdings are 47.98% of the portfolio. A SIP investment of Rs 5,000 a month in SBI Pharma Fund started 7 years ago is worth Rs 5.35 lakhs now.

Reliance Pharma Fund

Reliance Pharma Fund is one of the top performing funds in the Pharma Sector. The Fund seeks to invest in pharma sector with focus on important segments of the sector viz Domestic Business, International & CRAMS and include deep value as well as high growth pharma businesses. The fund gave 20.10% return (annualized) since its inception in June 2004. The funds 1, 3 and 5-year annualized returns are 9.33%, 4.53%, and 11.31%. The fund’s 1, 3 and 5-year return are ahead of its category and benchmark by 4-5 percentage points. The fund invests across market capitalization within the sector. The fund has around 19 stocks in its portfolio spread across large (64%), mid (26%) and small cap (9%) companies. The top 5 holdings are 48.42% of the portfolio. A SIP investment of Rs 5,000 a month in Reliance Pharma Fund started 7 years ago is worth Rs 6.18 lakhs now.

Which one is better?

Looking at each of the fund’s performance one can definitely tell that Reliance Pharma Fund is a better pick over SBI Pharma Fund. The fund has performed consistently over a period of time. It is the top performing fund of the sector. The fund’s strategy is unique and the SIP returns of the fund are higher. But there are other factors like risk, expense ratio and portfolio of the fund that are also important while zeroing down on a fund. If one chooses to invest in pharma funds then Reliance Pharma Fund is definitely a better pick then SBI Pharma Fund. However, investing in the sector fund needs complete knowledge about the sector, confidence in the sector and a little bit of luck.

Fund NameSBI Healthcare Opportunities FundReliance Pharma Fund
Launch DateDecember 31st, 2004Jun 05, 2004
AUMRs 1,002 croreRs 2,688 crore
Return (Returns greater than 1 year are annualized)Since Launch: 14.35%
1 Year: 0.03%
3 Year: -4.12%
5 Year: 8.36%
Since Launch: 20.10%
1 Year: 9.33%
3 Year: 4.53%
5 Year: 11.31%
Expense Ratio2.24%2.16%
Fund Category RiskHighHigh
Investment PlanGrowthGrowth
Minimum Investment Horizon7+ years7+ years
Minimum InvestmentRs 5,000Rs 5,000
Minimum Additional InvestmentRs 1,000Rs 1,000
Exit Load0.5% if withdrawn within 15 Day(s)1% if withdrawn within 1 Year(s)
No exit load if withdrawn after 15 Day(s)No exit load if withdrawn after 1 Year(s)
Fund ManagerTanmaya DesaiMr. Sailesh Raj Bhan

Sector Analysis

Pharma sector has been underperforming significantly due to U.S. Food and Drug Administration regulatory issue, U.S. price erosion impacting Indian pharma players in the generic market and thus increasing competition through new entrants. Due to this, the pharma stocks have been trading at multi-year lows with the sector PE lower than the historical average. Since pharma funds have pharma stocks they have been giving lower and sometimes negative returns.

The sector has been getting a lot of interest from fund managers as the fund as it is expected that the sector will experience double-digit sales growth. The sales growth expectation can be linked to economic growth leading to higher disposable incomes, the thrust on rural health programme, improvements in healthcare infrastructure and GST-led disruption. The healthcare companies are also working on improving their quality to meet US FDA guidelines which will keep their approvals rate high. This sector has been receiving an increased allocation in mutual funds every year.

Going forward pharma funds will invest the majority of their assets in biotechnology, pharmaceuticals, diagnostic services, hospitals, medical equipment, and home healthcare companies. Also, pharma can be considered as a value sector as the past troubles the industry was facing has been factored in the prices of stocks and valuations. Investing at these discounted prices and not so dull future for the pharma sector one can expect the pharma funds to perform just fine in the future.

However, investing in sector funds can be highly risky. These funds are more volatile than diversified sector funds. Sector funds are for investors who personally believe in the sector and have a very high-risk appetite. Investing in sector funds is recommended only if one has a high-risk appetite and can invest for an entire business cycle (7 years.)

 

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