Aditya Birla Sun Life Mutual Fund has launched an open-ended sectoral fund, Aditya Birla Sun Life Pharma and Healthcare Fund (ABSLPHF).

The fund house has launched this scheme aligned to seek gains from government reforms introduced to push the growth of pharma and healthcare service sector.

The fund house is of the view, that Indian Pharma industry is poised to touch a $ 100 billion mark by 2030. This is because: 

  • Globally India is the world’s largest supplier of Generic Medicines,
  • India contributes to 50% of the global demand for various vaccines and generic drugs,
  • Domestic production is nearly one-third of the US
  • Growing awareness within the health industry and rise in disposable incomes has increased the lifespan of individuals has fuelled the demand for healthcare
  • Due to affordability and the quality of care in the country, medical tourism to witness a boost in its revenues.
  • Under the National Health Protection Scheme (Ayushman Bharat Yojana), witnessed 27 lakh beneficiaries gain free hospital treatment and is stimulating growth in medical spends.
  • Besides, even health insurance domain is showing signs of growing penetration and there is room for an increase in private hospitals due to low bed density.

ABSLPHF seeks to gain benefits from such improvements in pharma and healthcare service sector.

As per the current AMFI mandate, ABSLPHF will mainly aim to invest a minimum 80% of its total assets in companies that are from pharmaceutical and healthcare domain within the prescribed limits.  Also, it may take a smaller exposure to equity and equity-related securities of other companies, debt and money market Securities, and Units issued by REITs & InvITs.

From a risk standpoint, given the portfolio allocation is skewed heavily to equity, ABSLPHF is a high-risk contender and thus suitable only for investors who have a high-to-very high-risk appetite and an investment horizon of at least 5 years.

Do note that sectoral fund is a sub-category of equity mutual fund that invests in companies of one particular sector of the market. Sector funds are a very-high risk-very high return investment proposition, as the fortune of the fund is closely linked to the undercurrents of a specific sector, although it could invest across the market capitalization spectrum.

[Read: Why Comparing Returns to Risk Is More Meaningful!]

From a tax implication standpoint, the Aditya Birla Sun Life Pharma and Healthcare Fund will be classified as an equity-oriented mutual fund scheme. Hence, if redeemed within a holding period of one-year, Short Term Capital Gain Tax (STCG) tax @ 15% will apply. And if redeemed after a period of 1 year, the Long-Term Capital Gains (LTCG) in excess of Rs 1 lakh will be taxed @10%.

Table 1: NFO Details

Type An open-ended equity scheme investing in Pharma and Healthcare Services Sector Category Sectoral Fund
Investment Objective The scheme provides long term capital appreciation by investing in equity/equity related instruments of the companies in the Pharmaceuticals, Healthcare and Allied sectors in India.

The Scheme does not guarantee/indicate any returns. There can be no assurance that the schemes’ objectives will be achieved.
Min. Investment Rs 1,000 and in multiples of Re. 1 thereafter. Face Value Rs 10 per unit
Plans  • Regular

• Direct*

* default option
  • Growth *
  • Dividend
    • Pay-out Dividend
    • Reinvest Dividend
* default option
Entry Load Nil Exit Load For redemption / switch-out of units: –

• On or before 90 days from the date of allotment: 0.5% of applicable NAV.

• After 90 days from the date of allotment: Nil
Fund Manager Mr Dhaval Shah Benchmark Index S&P BSE Healthcare TRI
Issue Opens: Thursday, June 20, 2019 Issue Closes: Thursday, July 04, 2019

(Source: Scheme Information Document)

What is the Asset Allocation of Aditya Birla Sun Life Pharma and Healthcare Fund?

Under normal circumstances, the scheme’s asset allocation or asset distribution weight will be as under.

Table 2: ABSLPHF’s Asset Allocation

Instruments Risk Normal Allocation (% of total assets)
Equities & Equity Linked instruments of companies in the Pharma, Healthcare and Allied Sectors High 80% – 100%
Other Equities & Equity Linked instruments High 0% – 20%
Units issued by REITs & InvITs Medium to High 0% – 10%
Debt and Money Market Instruments Low to Medium 0% – 20%

(Source: Scheme Information Document)

What is the Investment Strategy of the Scheme?

The corpus of the Aditya Birla Sun Life Pharma and Healthcare Fund will be primarily invested in equity and equity related securities of the companies in the Pharma & Healthcare Sector. The Scheme may also invest a small portion of its corpus in money market instruments to manage its liquidity requirements.

All companies selected will be analysed considering the business fundamentals like nature and stability of business, prospects of future growth and scalability, financial discipline and returns, valuations in relation to the broad market and expected growth in earnings, the company’s financial strength and track record.

The fund invests in debt securities and money market instruments issued by corporate and/or state and central government with the aim of controlling volatility and providing cash flows on a continuous basis.

Rigorous in-depth credit evaluation of the securities proposed to be invested in will be carried out by the investment team of the fund manager or its fixed-income investments. In addition, the fund manager and his team will study the macroeconomic conditions, including the political, economic environment and factors affecting liquidity and interest rates.

The portfolio shall be structured to keep the risk at acceptable levels and invest across the Market cap. This shall be done through various measures including:

  • Broad diversification of portfolio focusing on Pharma, Wellness, Healthcare Services and Specialty Chemicals.
  • Ongoing review of relevant market, industry, sector and economic parameters
  • Investing in companies which have been researched. Companies deemed to be leaders in their respective products/industry.
  • High-quality businesses exhibiting favourable economics, capable and trustworthy management teams.
  • Other parameters like operating profit margin, net profit margin, P/E ratio, better earnings visibility, etc.
  • Investments in debentures and bonds will usually be in instruments which have been assigned investment grade ratings by any approved rating agency.

The scheme may also invest in ADR/ GDR and equities of listed overseas companies. These investments will be made in line with the RBI and SEBI guidelines and will be within the limits prescribed by SEBI/RBI from time to time.

The fund manager may, from time to time, review and modify the Scheme’s investment strategy if such changes are in the best interests of the unitholders and if market conditions warrant it. Investments in securities and instruments not specifically mentioned earlier may also be made, provided they are permitted by SEBI/RBI and approved by the Trustee.

Who will manage the Aditya Birla Sun Life Pharma and Healthcare Fund?

Mr Dhaval Shah is the designated Fund Manager of the Aditya Birla Sun Life Pharma and Healthcare Fund.

Mr Shah is a commerce graduate (B. Com), has an MMS (finance) degree to his credit from the University of Mumbai and is a CFA. Mr Shah is an Associate Vice President at Aditya Birla Sunlife Mutual Fund. He has over 15 years of work experience in Equity Capital Markets. He has also worked with Morgan Stanley Investment Management, Reliance Capital Asset Management Ltd. and Edelweiss Securities.

At the fund house, currently, he co-fund manages Aditya Birla Sun Life Equity Hybrid ’95 Fund.

The outlook for Aditya Birla Sun Life Pharma and Healthcare Fund:

In an endeavour to achieve the stated objective of the scheme, ABSLPHF will predominantly invest in stock of companies belonging to the Pharma, Healthcare and other allied/ancillary sectors.  The primary aim is to tap potential gains for the long term by investing focusing on Pharma business along with Wellness, Healthcare Services and Speciality Chemicals.

The portfolio of the Aditya Birla Sun Life Pharma and Healthcare Fund as mentioned in the leaflet will be constructed such that;

  • It will be biased towards (60% – 80%), large caps and mid-caps and will allocate a small portion (10% – 20%) to small-cap companies.
  • It will select high growth companies looking at its business scalability, stability, consistency, strong earnings growth potential, businesses exhibiting favourable economies and has capable and trustworthy management offered at reasonable valuations.
  • It will have a focused portfolio of 20-25 stocks of companies having a higher ROCE than the cost of capital and improving cash flows from operations.

But the fortune of the fund is closely linked to the performance of the overall Pharma and Healthcare Services sector, as the scheme is of a defensive sector.

Besides, current valuations aren’t cheap, and the average P/E of S&P BSE Sensex trails at 28.3x. Corporate earnings need to justify valuations. Although the equity markets corrected, and the 2019 Lok Sabha election results declared pushed the markets upward. It crossed the psychological mark of 12,000 (and on the S&P BSE Sensex 40,000) but couldn’t sustain those levels.

Even the Nifty 500 profit-to-GDP ratio is at a 15-year low. If the economic growth does not pick up from here on, it may hurt the bottom line of companies. It remains to be seen how the new Modi cabinet tackles the GDP growth (which seems to have lost the momentum of late), international crude oil prices movement, the inflation trajectory, and fiscal deficit as this affects the equities.

[Read: Will Modi 2.0’s New Cabinet Have A Positive Impact On Your Portfolio?]

Along with the global headwinds in play; a wave of Trump policies, US-China Trade War, and going forward even India’s relation with the US and rest of the world and Brexit will affect the overall markets. So even the Pharma, Healthcare and its other allied/ancillary sectors will not be spared.

Hence, the construction of the portfolio would be a challenge for the fund manager and his team to spot opportunities in the current environment and the risk management measures they adopt.

Thus, there is extremely high risk involved, despite the good opportunities available for long-term growth. So, consider the implications involved before investing in the Aditya Birla Sun Life Pharma and Healthcare Sectoral fund as it is placed at the higher end of the risk-return spectrum.

Hence invest in a sectoral fund only if you:

  • Have an extremely high-risk appetite
  • Can stay invested for 7-10 years without getting perturbed

[Read: Best SIPs To Invest in 2019]

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