The IT and pharma pack are two sectors which are seen to be multibaggers in few years time. So, if you are too keen to make good returns from the space but are not able to shortlist on few of the good pharma scrips, you can bet on Pharma ETFs. In fact Divis labs is one such stock that has been given a thumbs up by analyst to be the next multibagger.
Prospects of Pharma sector
While even before the outbreak of the pandemic, stock market experts have been bullish on the sector, the pandemic has only upped the prospect for the sector. The Niti Aayog report has suggested that the pharma space has emerged as the largest in terms of both revenue as well as employment.
Now given the government push i.e. both for the vaccination as well as the funding for the healthcare sector, it is estimated to reach $372 billion by the year 2022.
Other positives for the sector include Aatmanirbhar push as a result the centre has already earmarked Rs. 6940 crore investment towards the ssector under the PLI scheme for promoting domestic manufacturing of bulk drugs across 53 APIs (active pharmaceutical ingredients) over the next six years.
Why should you invest in Pharma ETFs?
For those who may not be well versed in stock picking, mutual funds are the best route and likewise they can go for ETFs. Most of the ETFs though are passively managed and track the underlying index so herein they will tend to replicate returns of the healthcare index. Further because of the passive nature of the fund management these funds carry lower expense ratio.
Other advantages of ETFs in general
1. As the name suggests these funds are primarily traded on exchanges and so during the market hours, investors can conveniently sell or buy their units.
2. They also provide the benefit of you getting the units in real time. This is against the mutual funds which allot the unit based on the closing NAV or net asset value.
3. Another positive is that the allocation is in line with the index there is no likelihood of the fund manager going wrong in the selection.
So, investors can have the best exposure to listed pharma scrips on Indian exchanges via the ETF route:
Here are some such Pharma ETFs where investors can test their fate and make good returns in line with the Nifty healthcare index.
1. ICICI Prudential Pharma ETF:
Like with ETF, these ETFs shall serve an investor with the highest return if held for a long term of say over 7 years. NAV of the fund as on June 25, 2021 is 85.93. The fund aims to provide before expenses that closely correspond to the total return of the benchmark index subject to tracking errors.
Minimum lump sum investment in the fund can be to the tune of Rs. 1000. As on May 31, 2021, the fund's size is to the tune of Rs. 20 crore. Benchmark of the fund is Nifty Healthcare TRI.
Notably this is the most recently launched ETF so return and all other such data is not available. Top holdings of the fund include Sun Pharma, Dr. Reddy's, Divi's, Cipla, Apollo Hospitals, Lupin, Aurobindo Pharma etc.
Mr. Kayzad Eghlim is the fund manager of the scheme.
2. Axis Healthcare ETF:
Minimum investment in the fund is Rs. 5000 and the AUM of the fund is Rs. 28 crore as on May 31, 2021. This ETF is also lately launched and tracks the benchmark as Nifty Healthcare TRI. Expense ratio of the fund is 0.22 percent. Since the launch date i.e. May 17, 2021, the fund has yielded over 2% return.
Some of the top holdings of the fund have been Sun Pharma, Divis Labs, Dr. Reddy's, Cipla, Apollo Hospitals, Lupin, Aurobindo Pharma, Laurus Labs, Biocon.
Mr. Jinesh Gopani is the fund manager of the Axis pharma ETF. As on June 28, 2021, the ETF trades at an NAV of 86.55, with day's range between 85.25-86.95. Volume in the ETF is 5000.
3. Nippon India Nifty Pharma ETF:
This Nippon India Nifty Pharma ETF is currently available as a NFO. Minimum application for the NFO is Rs. 1000 and thereafter. The portfolio of the fund shall comprise stocks that constitute the Nifty Pharma Index and in exactly the same proportion as the underlying Index.
Nonetheless, investors should be mindful of the various risks such as risk per se liquidity, settlement, default risks etc.
Notably, even some of these are new ETF launches, it important to note that their benchmark has done exceedingly well over the last year and 1-year return from the Nifty healthcare has been to the tune of 48 percent and the Covid outbreak has only enhanced the prospects for the sector.
Taxation of Pharma ETFs
If the mutual funds are sold after holding for a period of 1 year and gains are over Rs. 1 lakh then they will be taxed at the rate of 10%. Note capital gains of up to Rs. 1 lakh shall be exempt from tax.
Nonetheless if the holding period is less than 1 year then capital gains shall be taxed at the rate of 15%.
Taxation of dividend if realized on Pharma ETFs:
Dividends are added to the individual's income and taxed as per the investors' respective tax slab. Note, if an investor's dividend income exceeds Rs. 5,000 in a fiscal year, then the AMC shall also deduct a TDS of 10% before the distribution of dividend.
Notably even as these schemes are lately launched they provide investors the opportunity to have an exposure to an overwhelming pharma pack that has the potential to general multibagger returns in few years time.
Disclaimer: Note these ETFs are listed for informational purpose. Authors, company will not be liable for any losses incurred based on the decision taken considering the above story. Investors should do their research and consult professional investment consultants.