Investors are expecting the healthcare sector to perform better than other sectors in the long term. In this article I wish to explain why and how one should invest in the healthcare sector to reap the potentials.
Why investment in health sector looks attractive
The Second wave of Covid-19 has already shattered all of us and there are warnings about the third wave looming large. The speed with which the second wave spread has taken everyone by surprise and shock.
It has made all of us realise the importance and inadequacies of medical infrastructure in the country. This realisation will push the governments to make huge investments in healthcare sector in the years to come. The inadequacies of the available facilities is evident from the economic survey of 20-21 which mentioned that a total of 15,99,870 lives were lost due to poor quality of healthcare in the country. Ramping up of health infrastructure is not a short term task which can be completed in a few months. It will take years altogether for us to have a reputable level of infrastructure in place.
Moreover, healthcare is a sector which needs to constantly innovate to remain relevant. The innovations relate to the process of treatments as well the diagnostic and treatment methods used for treatment of the patient. The innovations need constant investment and spending.
Schemes like Ayushyaman Bharat Yojana will hugely increase the demand of hospital infrastructure as well other dependent services like diagnostics and pharmaceutical products. All these will open up huge opportunities for the companies engaged in various activities connected with healthcare sector.
This all points to importance of investing in healthcare sector.
How one can invest safely in healthcare sector
Since health infrastructure comprises of various activities related with health service and as there are hundreds of companies engaged in providing these services, it is not possible for an average investor to identify and invest in companies which have potentials to perform better.
In order to measure performance of various sectors, NSE and BSE have devised various indexes. NSE has Nifty Healthcare Index to measure performance of health care sector. The Nifty Healthcare index represents various companies engaged in manufacturing of pharmaceutical products, diagnostics, medical equipment and tools and those running hospitals. It is represented by 20 leading companies engaged in the above four segments of health care.
Since you can neither invest in the index directly nor can practically invest in all the constituent companies of the index, mutual fund houses offer you passive schemes which imitate various indexes. In order to cater to the needs of the investors to invest in the healthcare Sector ICICI prudential mutual fund has come out with new fund offer of Nifty Healthcare Index Exchange Traded Exchange (ETF). The New Fund offer was open from 6th May and 14th May. You can invest in these ETFs on stock exchanges as the same have now been listed. This offers you the opportunity to invest in all the top 20 companies of the sector without having to do any research. It will not be out of place to point out that the Nifty Healthcare Index has outperformed the Nifty 50 Index 6 out of 10 times till 2021.
Why invest through ETF
Exchange traded funds are generally the units of schemes which track a particular index fund but are traded on stock exchanges. So the ETFs are passive funds imitating an index. The days of actively schemes beating the benchmark consistently are over and therefore investors have started investing in passive funds. The same is evident from the fact that global AUM of ETF has gone up from 1313 Billion USD in 2010 to 7336 billion USD in 2020 representing CAGR of 18.77%.
Investing in ETF is very cost effective as the fund management charges of ETF are substantially lower than the actively managed fund. Moreover, as the ETFs are traded on the stock exchange on real-time basis reflecting movement of particular segment of the market at any given point of time, it offers you the opportunity to reap the benefit of intraday volatility in the market. This opportunity is not available for investments made through non ETF schemes of mutual funds as the transactions in these schemes are done at single NAV arrived at after close of the market. For investing in ETF, one needs to have a trading account with stock broker as well as demat account.
Taxation of the proposed EFT
ICICI prudential ETF is an equity oriented scheme so any capital gains made on transfer of these ETFs shall be taxed at concessional rates. Any gains made on transfer/sale of these ETFs within one year shall be taxed at 15% and shall also be eligible for rebate under Section 87A in case the total taxable income does not exceed five lakhs.
The profits made on selling of these ETFs after 12 months shall be taxed at flat rate of 20% after initial exemption of one lakh. The initial exemption of one lakh is available for the aggregate of profits made on all listed shares and equity oriented mutual funds schemes like this ETF taken together.
The writer is a tax and investments expert and can be reached at jainbalwant@gmail.com
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