Axis Defence Index Fund: Why this sectoral bet could work for your portfolio

If you are looking to tap into India’s fast-growing defence sector, Axis Mutual Fund’s latest offering may be worth your attention. The fund house has launched the Axis Nifty India Defence Index Fund, a passive scheme designed to give you exposure to one of the country’s strongest structural growth themes.

This open-ended index fund tracks the Nifty India Defence Index (Total Return Index). For you, this means the fund does not actively pick stocks but replicates a basket of defence-related companies, aiming to deliver returns in line with the index. The portfolio includes firms involved in aerospace, defence equipment, shipbuilding, explosives, and allied services.

India’s defence story

India is emerging as a key player in the global defence shift. The country’s defence budget has grown 2.7 times since FY14, reaching about ₹6.8 lakh crore in FY26. Domestic production has nearly doubled in the past five years, while exports have surged from ₹2,000 crore in FY17 to over ₹23,000 crore in FY25.

This clearly reflects three structural trends: the government is spending more, India is producing more domestically, and Indian defence companies are increasingly exporting to global markets. Policy initiatives such as Atmanirbhar Bharat and higher FDI limits are further accelerating private sector participation and strengthening the ecosystem.

Axis AMC MD & CEO B. Gopkumar said the sector is undergoing a multi-year transformation, supported by rising budgets, strong policy intent, and expanding export opportunities. He added that the fund offers investors a low-cost, rules-based way to participate in this long-term structural growth theme.

Fund details

The Axis Nifty India Defence Index Fund is a passive scheme that replicates the Nifty India Defence Index, offering exposure to companies deriving significant revenue from defence-related activities. The portfolio includes firms in aerospace, defence equipment, shipbuilding, explosives, and allied services, selected through defined criteria and weighted by free-float market capitalisation with caps. The index is rebalanced semi-annually to maintain discipline and transparency.

The NFO is open from April 10 to April 24, 2026. The fund is managed by Nandik Mallik and Rohit Gautam, with a minimum investment of ₹100. An exit load of 0.25% applies if redeemed within 15 days.

What this means for you

For you as an investor, defence is shaping up as a long-term opportunity rather than a short-term trade. Unlike cyclical sectors, it benefits from strong government backing, long-term contracts, and increasing global demand visibility.

The fund follows a passive strategy, which offers several advantages. You benefit from lower costs, transparency, and the absence of fund manager bias. In simple terms, you are taking exposure to the entire sector rather than relying on individual stock selection.

Risks you should not ignore

Despite the strong growth narrative, this is not a low-risk investment. Defence stocks can be volatile, often reacting sharply to government orders, policy changes, and geopolitical developments. The thematic nature of the fund also means lower diversification compared to broader equity funds, increasing risk concentration.

Defence funds: Performance snapshot

Defence-themed mutual funds have seen strong traction, driven by rising government spending, indigenisation, and strong order books across defence PSUs and private players.

The HDFC Defence Fund Direct – Growth currently leads the category with an AUM of ₹8,096.66 crore. Despite a short-term decline of 4.83% in the past month, it has delivered 29.25% returns over one year, highlighting strong underlying momentum. Its expense ratio of 0.82% is relatively higher, reflecting its active management approach.

Among passive options, the Motilal Oswal Nifty India Defence Index Fund has delivered the highest 1-year return of 31.62%, with an AUM of ₹3,697.63 crore and an expense ratio of 0.58%. The Aditya Birla Sun Life Nifty India Defence Index Fund has posted similar returns of 31.47% with a lower expense ratio of 0.33%, though with a smaller AUM of around ₹900 crore.

Other options like the Groww Nifty India Defence ETF FoF and Mirae Asset Defence ETF FoF remain smaller in size, indicating relatively lower investor participation and liquidity.

Across the category, recent 1-month returns remain negative (around -4.7% to -5.7%), while 3-month returns are modestly positive (around 1.2%–1.8%), signalling a phase of consolidation after a strong rally.