#HDFCDefenceFund #DefenceMutualFund #IndiaDefence #SectoralFunds #MutualFundsIndia #AtmanirbharBharat
By Lavanya Singla | July 6, 2025
India’s pioneering sectoral mutual fund dedicated to the defence and allied industries — the HDFC Defence Fund — has completed two years since its inception, and it’s doing more than just making headlines. As of May 30, 2025, the fund has delivered a stellar return of 57.71% since launch, outperforming traditional large-cap indices and shining a spotlight on the country’s growing defence sector.
Launched on June 2, 2023, by HDFC Mutual Fund, the scheme is India’s first and only mutual fund specifically targeting companies involved in defence manufacturing, R&D, aerospace, and related infrastructure. The fund’s exceptional performance reflects not just strategic stock selection but also the broader momentum in India’s defence sector, driven by government policy, rising defence allocations, and an increasing push for indigenous capabilities under the Make in India and Atmanirbhar Bharat initiatives.
💰 Impressive Numbers: From ₹10,000 to ₹24,810 in 24 Months
According to the fund house’s May 2025 factsheet, an investment of ₹10,000 in the Regular Plan – Growth Option at launch would have grown to ₹24,810, a growth of nearly 2.5x over just two years.
In comparison:
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The Nifty India Defence TRI (the fund’s benchmark) surged 89.96% during the same period.
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The broader Nifty 50 TRI delivered a comparatively modest 16.89% return.
While the fund slightly underperformed its own benchmark, it still delivered strong absolute and relative returns in the thematic fund category — which includes sector-specific equity mutual funds.
📈 SIP Performance: Steady Investors Also Reap Big Rewards
For investors using a Systematic Investment Plan (SIP), the returns have been equally impressive:
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A monthly SIP of ₹10,000 started at the fund’s launch would have added up to ₹2.4 lakh over 24 months.
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The investment is now worth approximately ₹3.7 lakh, delivering a 48.24% annualised return (XIRR).
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A 12-month SIP of ₹10,000 (₹1.2 lakh invested) would now be valued at ₹1.43 lakh, reflecting a 37.23% XIRR.
These figures highlight how long-term discipline combined with thematic investing can generate outsized returns — albeit with higher risk exposure.
🧭 Why Is the Fund Performing So Well?
Several structural tailwinds have contributed to this outperformance:
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Rising Government Spending: The Indian government has steadily increased its capital outlay for defence in recent budgets.
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Policy Support: Schemes like DAP (Defence Acquisition Procedure), Production Linked Incentives (PLI), and liberalised FDI norms have spurred private sector participation.
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Make in India / Atmanirbhar Bharat: Emphasis on local manufacturing has benefited Indian defence contractors and suppliers.
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Global Geopolitical Tensions: Rising instability globally has indirectly benefited Indian defence exports and demand for strategic technologies.
🧾 Fund Structure & Portfolio
The HDFC Defence Fund maintains a high-conviction, focused portfolio, with over 95% of its assets in equities, as of May 2025.
Key details:
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Assets Under Management (AUM): ₹6,664.73 crore
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Net Asset Value (NAV): ₹24.810 (Regular Plan – Growth)
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Expense Ratio: 1.77% (Regular), 0.71% (Direct)
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Benchmark: Nifty India Defence TRI
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Exit Load: 1% if redeemed within 1 year
In April 2025, the fund saw a change in management, with Rahul Baijal and Priya Ranjan taking over as co-managers. Despite the transition, the fund has maintained strong returns, which suggests continued confidence in its long-term strategy.
⚠️ Risks & Considerations
While the returns are remarkable, investors should remember that thematic mutual funds are inherently risky. The HDFC Defence Fund’s concentrated exposure to a single sector means it is more volatile than diversified equity funds.
As experts often caution: “Past performance is not an indicator of future results.”
The fund is best suited for aggressive investors who have a high-risk appetite and a long-term investment horizon. Financial advisors generally recommend that such funds make up only a small portion (5–10%) of an investor’s total portfolio.
🇮🇳 What It Means for India’s Defence Sector
The HDFC Defence Fund’s success is a reflection of the larger narrative — that India’s defence sector is no longer just a strategic necessity but also an investment-worthy growth story. The increasing financialization of defence through retail channels could support private players, boost market liquidity, and encourage even more public-private partnerships in the years ahead.
Moreover, the fund has brought defence investing into the mainstream, allowing everyday Indians to participate in the country’s military modernization and technological advancement.
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📌 Bottom Line
The HDFC Defence Fund has made a powerful mark in its first two years, offering investors an exciting — though risky — avenue to tap into India’s fast-growing defence sector. With policy momentum on its side and a maturing domestic industry, this fund could continue to be a standout in the years to come.
