The fund seeks to capitalize on India’s evolving healthcare ecosystem, which is being shaped by favourable demographics, expanding healthcare access, rising insurance penetration, growing global pharmaceutical leadership, and emerging innovation driven opportunities across healthcare and life sciences.
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Investment universe
The scheme will invest across pharmaceutical companies, hospitals, diagnostics, contract development and manufacturing organizations (CDMOs), contract research organizations (CROs), medical devices, healthcare services, insurance and other allied healthcare segments.
According to the fund house, the pharma and healthcare sector fund is the next chapter in India’s growth story. The scheme will invest across the healthcare value chain with sharp overweights and underweights in different components The scheme will have sharper portfolio positioning as compared to benchmark with high active share.
It will invest in up to 40 stocks The scheme will follow a combination of top down and bottom up investment approach The scheme will have a balanced approach across healthcare products and services, while also ensuring a healthy mix of domestic and export-oriented companies On aggregate level the scheme will maintain high quality and high earnings growth portfolio.
What does the fund manager said
Aditya Khemani, Head of Equity & Fund Manager: India’s healthcare sector is undergoing a structural transformation. The country is not only witnessing rising healthcare consumption driven by favourable demographics and increasing affordability but is also strengthening its position as a global pharmaceutical and healthcare innovation hub.We see attractive opportunities across domestic pharma, hospitals, diagnostics, CDMOs and emerging healthcare segments that can potentially benefit from this multi-year growth cycle. Our investment approach will focus on identifying quality businesses with sustainable competitive advantages and strong growth visibility across the healthcare ecosystem,” Khemani further said.
What experts say about the fund
Experts typically ask investors to avoid investing in NFOs unless they offer something unique. The uniqueness could be that the scheme is offering an investment option that is not available in the market or offering something extra to an existing option. Otherwise, the experts believe investors are better off with an existing scheme with a long performance record. This is because you have some historical data to base your investment decision. You don’t have any data when it comes to new offerings.
Vishal Dhawan, Founder & CEO, Plan Ahead Wealth Advisors told ETMutualFunds that the fund differentiates itself from conventional pharma schemes by taking an expansive approach across the entire healthcare spectrum, balancing healthcare products (44% revenue share) and healthcare services (56% revenue share). This scheme plans to allocate capital across generic and specialty pharmaceuticals, CDMO/CRO services, hospital networks, diagnostics, medical devices, and health insurance.
He further said that the fund will employ a focused portfolio strategy of up to 40 stocks across market capitalizations, combining top-down sector views with bottom-up stock selection.
Manish Kothari, Co-founder & CEO, ZFunds shared with ETMutualFunds that being a thematic fund, there’s naturally limited room for differentiation, but a couple of things stand out such as healthcare is a structurally quality-led growth sector, which aligns well with Invesco’s core investment style.
“Also, the healthcare index carries a heavy mid- and small-cap tilt, making stock selection critical in this space, an area where Invesco has a strong track record of alpha generation, which supports the case for this fund house specifically.”
Kothari also said that on valuations, the sector currently trades at a 20–25% premium to its own long-term average forward P/E and healthcare trades at a 60–70% premium to the broader index, well above its historical average premium of 25–30%. So the sector is expensive both in absolute terms and, more unusually, on a relative basis investors are paying meaningfully more than usual for the same growth.
“Given this backdrop, healthcare may not offer an attractive risk-reward in the near-to-medium term, however it carries long-term structural growth potential,” he further said.
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Outperforming domestic fund categories
According to Value Research data, these funds were the second best performer in 2026 so far post international funds with an average return of 16.53%. There were 30 funds in the pharma and healthcare fund category of which Kotak Healthcare Fund delivered the highest return of around 26.62% and ICICI Prudential Pharma Healthcare and Diagnostics (P.H.D) Fund delivered the lowest return of 9.86%.
Commenting on what helped these funds outperform all domestic fund categories in 2026 and what allocation can one have, Kothari said the strong 2026 performance has come from mid- and small-cap strength, specialty pharma growth, improving hospital profitability, and favourable currency trends for exporters.
Healthcare remains a structural long-term opportunity, not a tactical trade. As a satellite allocation, it should typically be capped at around 10% of the portfolio, with higher exposure only in specific cases, such as hedging healthcare inflation for elderly investors, he further said.
Dhawan said the healthcare sector has demonstrated strong performance in 2026 with the BSE Healthcare TRI delivering 3-year daily average rolling returns of 25.3% as of June 30, 2026 and the Indian Pharma Market expanded to Rs 2.6 lakh crore in FY26 with a 9.9% growth rate. Furthermore, during periods of broader market stress, such as the West Asia war in early 2026, the healthcare index demonstrated better downside protection by falling only 4.9% compared to an 11.3% decline in the Nifty 50.
He further said that from a portfolio construction perspective, a thematic exposure at 5% to 10% of an investor’s overall equity portfolio is important to avoid over-concentration in a single cyclical sector.
Will Trump’s fresh pharmaceutical tariffs hurt Indian pharma funds?
Another key concern for investors is the potential impact of US trade policies on Indian pharmaceutical companies. On July 21, US President Donald Trump announced a phased tariff plan for imported generic medicines, giving drugmakers a two-year reprieve before sharply higher duties kick in.
In a post on Truth Social, the US President wrote that all generic drugs being brought into the US will have no tariffs for a two year period. Following which, the tariff will be raised to 100% from August 1, 2028 and then to 200% by August 1, 2029.
This development gains significance because Trump’s earlier tariffs in the pharmaceutical sector targeted branded and patented drugs, with that policy remaining unchanged. Generic medicines were excluded from the earlier measures, despite accounting for nearly 90% of prescriptions in the US.
The announcement offers temporary relief to Indian pharmaceutical companies, which generate a significant share of their revenues from the US generic drug market. The two-year tariff-free period gives Indian exporters more time to reassess their supply chains and investment plans.
Trump said the phased tariff structure is intended to encourage companies to set up manufacturing plants and related infrastructure in the US during the transition period. Companies that do not localise production would eventually face punitive import duties, in line with the administration’s broader “America First” manufacturing agenda.
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The announcement comes as the Trump administration continues to push for changes in the pharmaceutical supply chain and reduce dependence on overseas manufacturing. It also complements the administration’s most-favoured-nation drug pricing policy, which aims to bring US medicine prices closer to those in other developed economies. The policy covering patented and innovative medicines remains unchanged.
Dhawan said while Indian pharmaceutical firms hold a dominant global position of supplying nearly 20% of generic drugs by volume and 40% of U.S. generic demand across 873 USFDA-approved facilities, tariffs are a major concern for export-oriented generic drugmakers.
“Out of India’s total $173 billion healthcare market revenue, export pharma accounts for $26 billion, i.e., 15%, whereas the remaining 85%, amounting to $147 billion, is generated through domestic healthcare delivery, domestic formulations, medical devices, diagnostics, and contract research.”
Funds that maintain a balanced exposure between domestic healthcare consumption and global exports may be better cushioned against single-segment headwinds like generic tariffs, he further said.
Kothari said these measures are unlikely to survive legal and congressional scrutiny in their fullest form. Notably, even this announcement builds in a long runway generic imports stay tariff-free for two years (through July 2028) before stepping up to 100% and then 200% leaving considerable room for negotiation, exemptions, and legal challenges before punitive rates actually bite.
That said, export-facing companies are likely to stay volatile as long as this uncertainty persists, since markets tend to react to headline risk well before implementation mechanics become clear, he further said.
Last one year performance and next 5-10 years
There were 29 funds in the category that have completed one year of existence and HDFC Pharma and Healthcare Fund delivered the highest return of 24.61% whereas ICICI Prudential Pharma Healthcare and Diagnostics (P.H.D) Fund delivered the lowest return of around 9.02%.
Kothari said that India’s healthcare growth story rests on several structural pillars, bed density and overall healthcare coverage remain low relative to population needs, leaving significant headroom for capacity build-out and rising health insurance penetration should steadily reduce out-of-pocket spending and improve affordability, expanding the addressable market for the sector as a whole.
Finally, India’s healthcare spending as a percentage of GDP remains very low, both in absolute terms and relative to global peers, suggesting substantial room for catch-up growth as incomes rise and healthcare infrastructure deepens, he further said.
Dhawan said India’s healthcare sector is supported by a few long-term factors, the population aged 45 and above is expected to reach 30% by 2030, increasing demand for long-term treatments for chronic diseases like diabetes and heart conditions.
“Hospital capacity also has room to grow, as India currently has 16 hospital beds per 10,000 people compared to the World Health Organization benchmark of 30 beds. Private hospital spending is projected to grow from Rs 4.8 trillion in FY25 to ₹8.7 trillion by FY30. Overseas companies are also outsourcing research and manufacturing to India due to lower operational costs.”
On the limitations side, India spends $2 billion to $3 billion annually on pharmaceutical research compared to $70 billion to $75 billion in the U.S., and patent grant efficiency remains lower than global averages, Dhawan further said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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