Mutual Funds: This Defence-Focused Fund Rockets To Nearly 60% Returns In Two Years—Are You Invested?

The HDFC Defence Fund, one of India’s first thematic mutual funds focused exclusively on the defence sector, has given phenomenal returns since its launch. Introduced on June 2, 2023, the fund has stood out in the thematic equity space, thanks to India’s focus on defence self-reliance and rising investor interest in government-backed manufacturing. 

For the uninitiated, thematic mutual funds invest in stocks or companies that fall under a specific theme, such as technology, defence healthcare, infrastructure, clean energy.

Also Read: Defence Stocks To Watch: HAL, Mazagon, BEL, BDL And Other Shares Are Soaring In 2025 — But Is It Right Time To Invest? | Republic World

As per data available on the fund house’s website, the scheme has generated an impressive 59.57% return since inception, positioning it among the better-performing thematic funds in its category. The Net Asset Value (NAV) of the fund stood at Rs 26.37 as of July 4, 2025, marking a steady rise from its base NAV of Rs 10 at launch..

Over a two-year period, the fund has clocked an absolute gain of over 154%, or roughly 58–59% CAGR, significantly outperforming the Nifty India Defence TRI, its benchmark index, which returned about 81.20 during the same period, as per a market tracking website. 

The fund’s Assets Under Management (AUM) reached Rs 7,055.48 crore as of June 30, 2025, highlighting the strong investor appetite it has attracted over the past year. 

Even its one-year return, which currently stands at 16.75%, is noteworthy considering the correction and consolidation seen in any defence stocks earlier this year, as mentioned on HDFC Defence Fund’s website. 

An expense ratio of 0.72% keeps costs reasonable for direct plan investors, and an exit load of 1% applies if units are redeemed within one year of purchase.

While the fund remains open for systematic investment plans (SIPs) — starting at just Rs 100 per month — lump-sum investments have been temporarily suspended, a move likely aimed at managing flows amid elevated valuations.

The company claims that its success underpinned by its exposure to frontline Indian defence and allied companies. Key holdings include heavyweights such as Bharat Electronics, Hindustan Aeronautics, BEML Limited, and Solar Industries, which collectively account for a larger chunk of the portfolio. 

As of 31 May 2025, the top 10 holdings in this portfolio include Bharat Electronics with the largest share at 19.04%, followed by Hindustan Aeronautics at 17.24% and Solar Industries at 15.68%. BEML Limited makes up 10.25%, while Astra Microwave has 6.03%. Other holdings are smaller in proportion, including Cyient at 4.07%, Premier Explosives at 3.16%, Bharat Dynamics at 2.86%, MTAR Technologies at 2.61%, and InterGlobe Aviation with the smallest share at 2.12%, according to the company’s website.

India’s defence sector has undergone a remarkable transformation over the past eleven years, evolving from a modest, state-driven effort into a confident and self-reliant ecosystem. This shift has been powered by strategic policymaking, rising defence budgets, and a strong push for indigenisation. 

The defence budget has nearly tripled, rising from Rs 2.53 lakh crore in 2013–14 to Rs 6.81 lakh crore in 2025–26, reflecting the country’s commitment to long-term military preparedness. Private industry participation has deepened, with innovation and indigenous development taking centre stage. In 2023–24, India recorded its highest-ever defence production at Rs 1.27 lakh crore—a staggering 174% jump from Rs 46,429 crore in 2014–15—signalling a structural shift in how the country builds for its security future.