Defence mutual funds gain ground: Sector funds rally 64% in 3 months, outshine Nifty 50

In the backdrop of tensions between India and Pakistan over the Pahalgam terror attack and Operation Sindoor, investor interest is surging in defence-related stocks and mutual funds. The Nifty India Defence TRI index, which tracks defence sector companies, has gained 64% in the last three months, significantly outperforming the Nifty 50 TRI, which is up 11.3% in the same period. Defence mutual funds have delivered excellent returns during this period.

Most defence funds, launched just last year and buoyed by strong inflows, saw a sharp correction in the second half of FY25, bringing their Net Asset Values (NAVs) below the launch level of Rs 10.

The defence sector — though relatively small in terms of the investment universe—witnessed its first dedicated mutual fund launch with HDFC Defence Fund in June 2023. It remains the only actively managed defence fund in India.

A year later, three fund houses introduced passive offerings in the defence space: Motilal Oswal, Aditya Birla Sun Life, and Groww, all tracking the Nifty India Defence Index between July and October 2024.

Defence Funds and Performance

HDFC Defence Fund, India’s first sector-specific defence fund, provides pure-play exposure through a concentrated portfolio of 22 stocks, including HAL and BEL. For passive investors, Aditya Birla SL Nifty India Defence Index Fund and Motilal Oswal Nifty India Defence Index Fund offer low-cost exposure to key defence companies. ABSL’s fund has returned ~19% since launch, Motilal Oswal’s fund has returned ~8.9%.

Diversified funds like Samco Flexi Cap and Motilal Oswal Large & Mid Cap Fund hold significant defence allocations—15.47% and 14.81%, respectively, providing broader thematic exposure. These funds cater to various risk profiles—active, passive, and diversified—making defence a viable long-term bet aligned with India’s military modernisation and national security imperatives.

1. HDFC Defence Fund

Launched: June 2023

AUM: Rs 5,487 crore

Type: Actively managed thematic fund

Focus: Entire defence value chain—engineering to tech

Portfolio Allocation:

Largecap: 46.14%

Smallcap: 34.59%

Midcap: 14.52%

Top Holdings:

Hindustan Aeronautics – 20.34%

Bharat Electronics – 19.34%

Solar Industries – 14.52%

2. Aditya Birla SL Nifty India Defence Index Fund

Launched: August 2024

AUM: Rs 460 crore

Type: Index fund

Focus: Mirrors Nifty India Defence Index

Portfolio:

Largecap: 38.33%

Midcap: 39.15%

Top Holdings:

HAL – 19.8%

BEL – 18.53%

Solar Industries – 16.02%

Returns since launch: ~18.98%

3. Motilal Oswal Nifty India Defence Index Fund

Launched: July 2024

AUM: Rs 2,875 crore

Type: Index fund

Focus: Tracks Nifty India Defence Index

Top Holdings:

Returns since launch: ~8.91%

Note: Differences in returns stem from launch timing and inflows.

4. Samco Flexi Cap Fund

Launched: February 2022

AUM: Rs 443 crore

Type: Flexi-cap active fund

Defence Allocation: 15.47%

Top Holdings:

BEL – 6.55%

Mazagon Dock – 4.47%

Bharat Dynamics – 4.00%

5. Motilal Oswal Large & Mid Cap Fund

Strategic tilt towards defence for long-term gains

Launched: October 2019

AUM: Rs 9,176 crore

Type: Large & Mid Cap fund

Defence Allocation: 14.81%

Top Holdings:

Bharat Dynamics – 4.26%

BEL – 3.90%

HAL – 3.52%

6. Groww Nifty India Defence ETF – Growth

The Groww Nifty India Defence ETF – Growth offers a low-cost, index-based entry into India’s booming defence sector. As of May 23, 2025, its NAV stands at Rs 84.47, with a return of 23.01% since launch, outperforming the category average.

It tracks the Nifty India Defence Index, providing exposure to key stocks like HAL, BEL, and Solar Industries. With an AUM of rs 106.95 crore (as of April 30, 2025), the fund is gaining traction among retail investors.