The healthcare sector has demonstrated exceptional performance, with the BSE Healthcare TRI delivering a 22.7% CAGR over seven years, significantly outperforming the broader market. According to data from Invesco India Pharma and Healthcare Fund NFO presentation, the healthcare index has delivered 12.5% returns over one year, 23% over three years, and 22.7% over seven years, consistently outperforming the Nifty 50 TRI across these periods. However, over a 10-year period, the two indices delivered broadly similar returns, with the healthcare index at 12.7% and Nifty 50 TRI at 12.3%. As per Mayank Jain, Market Analyst at Share.Market by PhonePe, this performance trajectory shows that "healthcare is a cyclical, thematic sector rather than a steady year-on-year compounder."
Recent mutual fund flow data from AMFI reveals contrasting investor behavior across market segments. Largecap funds saw outflows of ₹1,321.7 crore in July 2026, while midcap funds attracted ₹6,192.3 crore and smallcap funds ₹7,767.5 crore. As per Bharat Lahoti, president & co-head, factor investing at Edelweiss Mutual Fund, investors rotated towards midcaps and smallcaps where earnings growth and recent returns have been stronger. The outflows from largecaps were partly driven by foreign institutional investors selling largecap stocks over recent quarters, with the Nifty 50 having significant exposure to underperforming sectors like financials, oil and gas, IT, and FMCG.
The data reveals that risk-adjusted returns favor the balanced and debt portfolios across all periods. Risk-adjusted return is calculated as CAGR divided by annualised standard deviation, where a higher figure means the portfolio generated more return relative to the volatility recorded. Over 20 years, the equity portfolio had a standard deviation of 20.9% compared to 10.3% for the 50:50 portfolio and just 3.2% for fixed income. The 50:50 portfolio outperformed fixed income across all periods except in the last 1 year, with the short-term picture showing the equity portfolio down 3.6% while the 50:50 portfolio gained 1.1% and fixed income returned 5.8%.
Financial experts recommend maintaining exposure across various market-cap categories based on risk appetite rather than recent performance. According to Nitin Agrawal, CEO of mutual funds at InCred Money, conservative investors should keep 70-75% of equity portfolio in largecaps, moderate investors 50-55% in largecaps, 30-35% in midcaps and 10-15% in smallcaps, while aggressive investors may allocate 35-40% each to largecaps and midcaps and 20-25% to smallcaps. The minimum investment horizon should rise as investors move down the market-cap spectrum, with largecap funds requiring at least 3 years, midcap funds 5 years, and smallcap funds 7 years for optimal performance. For healthcare-focused investments, experts suggest maintaining exposure as a satellite allocation rather than a replacement for core market indices.
Market experts emphasize the importance of balanced sectoral exposure rather than complete market-cap rotation. As per Mayank Jain, Market Analyst at Share.Market by PhonePe, healthcare-focused funds can act as "tactical tools for generating alpha during thematic momentum phases" and are better suited as satellite portfolio allocation. He noted that Nifty 50 index investing remains relevant because the index provides exposure to 50 companies across sectors such as financial services, technology, consumer goods and industrials, offering broad diversification. Investors can look at both active healthcare funds with top performers like HDFC Pharma and Healthcare Fund at 25.07%, Kotak Healthcare Fund at 24.25%, and PGIM India Healthcare Fund at 23.79%, as well as passive options including Nippon India Nifty Pharma ETF and ICICI Prudential Nifty Pharma Index Fund.
