Defence Sector Mutual Funds in India (2025)
Over the six months leading up to July 2025, the Indian defence sector outperformed other sectoral indices with about 34.8% returns, led by defence PSUs and aided by supportive government policies. With this momentum, defence industry mutual funds have come into focus. These are thematic schemes that invest in companies linked to defence, aerospace, and related industries.
This article provides an overview of the defence sector mutual funds available in India. It covers their features, taxation, potential advantages, risks, and factors that investors should consider before investing in such mutual funds.
Top Defence Industry Mutual Funds in India
The following table lists some of the defence sector mutual funds available in India:
| Mutual Fund Plans | AUM (Rs. in cr.) | Expense Ratio (%) | NAV | Alpha | Volatility (%) | Exit Load (%) |
|---|---|---|---|---|---|---|
| HDFC Defence Fund | 6,497.99 | 0.75 | 23.7 | 6.02 | 26.25 | 1 |
| Motilal Oswal Nifty India Defence Index Fund | 3,495.93 | 0.42 | 10.03 | 9.51 | 31.43 | 1 |
| Aditya Birla SL Nifty India Defence Index Fund | 638.21 | 0.31 | 10.95 | 8.63 | 31.39 | 0.05 |
| Groww Nifty India Defence ETF FOF | 71.36 | 0.21 | 11.3 | 9 | 31.45 | 1 |
Disclaimer: Please note that the above table is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Mutual Fund Screener and is subject to real-time updates.
Note: The data on the list of the defence mutual funds is from 3rd September, 2025. This data is derived from the Tickertape Mutual Funds Screener.
- AUM: Sorted from Highest to Lowest
Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate funds with over 50+ pre-loaded filters and parameters.
Overview of Defence Industry Mutual Funds
HDFC Defence Fund
HDFC Defence Fund is an actively managed thematic scheme launched in 2023. It invests mainly in Indian companies from the defence and allied industries. The fund aims to capture opportunities from rising defence spending and policy support.
Motilal Oswal Nifty India Defence Index Fund
Motilal Oswal Nifty India Defence Index Fund, launched in 2023, is an index fund that tracks the Nifty India Defence Index. The scheme passively invests in defence and aerospace companies, reflecting the performance of the sector.
Aditya Birla SL Nifty India Defence Index Fund
Aditya Birla SL Fund passively replicates the Nifty India Defence Index, giving exposure to listed defence and aerospace companies. The fund provides access to the growing defence theme, but like other sectoral funds, it depends heavily on the performance of defence stocks.
Groww Nifty India Defence ETF FOF
Groww Nifty India Defence ETF FOF, introduced in 2024, invests in the Groww Nifty India Defence ETF. This FoF structure provides exposure to the Nifty India Defence Index. The scheme allows investors indirect access to defence stocks.
What are Defence Industry Mutual Funds?
Defence industry mutual funds are thematic schemes that invest in companies linked to the defence and aerospace sector. These may include manufacturers of aircraft, naval systems, defence electronics, equipment suppliers, and public-sector undertakings that serve India’s defence needs.
Unlike diversified funds, a defence theme mutual fund focuses on a single sector. As per SEBI classification, such schemes fall under the “thematic/sectoral mutual funds” category.
Taxation on Defence Industry Mutual Funds
Since defence sector mutual funds fall under the thematic/sectoral equity category, their taxation is the same as equity mutual funds. The Union Budget 2024 introduced changes to capital gains tax rules:
| Capital Gains Type | Holding Period | Tax Rate (Budget 2024) |
| Short-Term Capital Gains (STCG) | Less than 12 months | 20% (revised from earlier 15%) |
| Long-Term Capital Gains (LTCG) | More than 12 months | 12.5% flat; gains up to ₹1.25 lakh per year are tax-free |
How to Invest in Defence Industry Mutual Funds?
You can easily start to invest in defence industry mutual funds by following these steps:
- To invest in defence mutual funds, you can visit a mutual fund investment platform such as smallcase.
- The next step is to research and identify the defence sector mutual funds that match your financial goals. Tools like the Tickertape Mutual Fund Screener can help you filter and compare funds based on parameters such as returns, expense ratio, and fund size.
- Once you shortlist the funds, visit smallcase, log in, and search for the fund by name. You can then choose the investment mode, either a one-time lump sum or a defence stocks mutual fund SIP, and complete the process.
Features of Defence Industry Mutual Funds
- Thematic Focus: These funds invest mainly in companies from the defence and aerospace sector, including manufacturers, suppliers, and public-sector undertakings tied to India’s defence modernisation and self-reliance goals.
- Concentrated Portfolio: Unlike diversified mutual funds, defence sector funds hold a focused set of companies. This provides targeted exposure but increases risks since performance depends heavily on one industry.
- Equity-Oriented Structure: Defence mutual funds are classified as equity funds under SEBI rules. At least 80% of their portfolio must be invested in defence and allied companies.
Advantages of Defence Industry Mutual Funds
- Exposure to Growing Sector: Defence sector mutual funds provide access to companies that benefit from rising defence budgets, modernisation, and exports. It helps capture opportunities in one of India’s fastest-growing industries.
- Policy Support: Government programs like “Make in India” and higher defence spending raise the demand for companies making defence equipment. This can support the growth of mutual funds with defence stocks.
- Potential for High Returns: A defence theme mutual fund can deliver strong performance during periods of sector growth. However, returns remain linked to market cycles, government policies, and execution of defence projects.
- PSU Participation: Many mutual funds investing in the defence sector hold defence PSUs, which benefit from consistent orders and state support. It provides a stable base in portfolios otherwise exposed to volatility.
Risks of Defence Industry Mutual Funds
- Sector Concentration: As the defence mutual funds invest only in one industry, this may lack diversification. Due to this, the poor sector performance directly impacts fund returns compared to diversified mutual funds.
- Volatility in Defence Stocks: Defence and aerospace companies can experience sharp price swings due to order inflows, project delays, or earnings surprises. This makes mutual funds with defence stocks more volatile.
- Limited Track Record: Many defence industry mutual funds are newly launched, with limited long-term performance data. Investors have less historical evidence to evaluate consistency compared to older categories.
- Dependence on PSUs: Several defence mutual funds have large exposure to public-sector undertakings (PSUs). These companies may benefit from orders, but also face risks from government pricing policies..
- Cyclical Demand: Defence spending follows multi-year cycles based on government priorities. Periods of high capital expenditure can be followed by flat phases, which may impact the returns of defence sector mutual funds.
Factors to Consider Before Investing in Defence Industry Mutual Funds
- Investment Horizon: Defence sector mutual funds are equity-oriented thematic schemes. Investors need to consider a time horizon that might help them capture the full growth cycle of the industry.
- Risk Appetite: Defence industry mutual funds carry a higher concentration risk. To understand the behaviour of defence stocks mutual funds, it’s essential to recognise how sector-specific policies, budgets, and contracts influence their performance over different market cycles.
- Fund Costs: Expense ratios and exit loads vary across the defence sector funds. Even small differences in cost can impact net returns, making it an important factor in fees while assessing a mutual fund in the defence sector.
- Diversification: A defence theme mutual fund invests mainly in one sector. While this provides targeted exposure, it reduces diversification. Investors need to evaluate how such a focused theme fits into their broader portfolio mix.
- Tax Implications: Defence sector mutual funds are taxed like equity schemes. Long-term capital gains (after 12 months) are taxed at 12.5%, with up to ₹1.25 lakh per year exempt under the latest tax rules.
Who Might Find Defence Industry Mutual Funds Suitable?
- Thematic Investors: Defence industry mutual funds may align with those interested in sector-focused themes. These investors often track specific industries, such as defence, and look for funds that capture related opportunities.
- Medium- to Long-Term Planners: Defence sector mutual funds are designed around an industry that grows with long-term government spending and contracts. Such funds may appeal to those aligning investments with extended financial horizons.
- Risk-Tolerant Participants: Defence stocks mutual funds carry higher volatility compared to diversified schemes. They may be more relevant for investors who understand and accept the risks of sector concentration.
- PSU-Focused Investors: Many defence sector funds invest in public-sector undertakings (PSUs). Those following PSU performance may find these funds offer direct exposure to large, government-linked defence companies.
- Theme Diversifiers: Some investors may add a defence theme mutual fund alongside diversified holdings to explore growth in one of India’s expanding industries. This sectoral allocation may complement a broader mutual fund portfolio.
To Wrap it Up..
The Indian defence sector has gained momentum through higher government budgets, rising domestic production, and record exports. These funds bring opportunities to participate in a growing sector, but also carry risks due to sector concentration, policy dependence, and volatility. Moreover, the returns depend on market cycles, government orders, and company performance.
That’s why investors must analyse the features, risks, costs, and taxation of defence mutual funds and also consult a financial advisor before making any investment decision.
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Frequently Asked Questions on Defence Industry Mutual Funds
Defence industry mutual funds are thematic schemes that invest in companies from the defence and aerospace sector, including manufacturers, suppliers, and public-sector undertakings involved in defence production.
These funds allocate at least 80% of their portfolio to defence-related companies. Their performance depends on defence budgets, government policies, and the financial strength of listed defence firms.
Mutual funds in defence sector come with certain risks because they invest in a single industry. Their performance depends on factors like government spending, sector reforms, and market conditions. This concentrated approach may lead to higher volatility compared to diversified funds.
As equity-oriented schemes, defence mutual funds are taxed like equity funds. Long-term capital gains (after 12 months) are taxed at 12.5%, with gains up to ₹1.25 lakh per year tax-free.
Yes, some mutual funds that invest in the defence sector allow SIPs. Investors can contribute fixed amounts regularly, though returns remain subject to market risks and sector performance.
You can find defence sector mutual funds on platforms like Tickertape. The tool allows you to check performance and further compare schemes using more than 200 filters such as returns, expense ratio, fund size, and more.
