The defence sector in India has transformed into a hotbed of investment activity throughout 2025. Backed by the government’s hefty 13% budget increase and an unwavering commitment to “Make in India” initiatives, defence manufacturing has captured serious investor attention. Forward-thinking fund houses have responded by creating specialised mutual funds that offer exposure to this strategically vital sector.
Leading Defence Mutual Funds by Assets Under Management (AUM)
| Fund Name | Assets Under Management |
| HDFC Defence Fund | ₹4,975.51 Cr |
| Motilal Oswal Nifty Defence Index Fund | ₹2,875.46 Cr |
| Aditya Birla Sun Life Nifty Defence Index Fund | ₹391.11 Cr |
| Groww Nifty India Defence ETF FoF | ₹34.12 Cr |
Each fund provides investors with calculated exposure to companies spanning military hardware manufacturing, aerospace technology, security systems architecture, and the broader defence ecosystem that strengthens India’s strategic capabilities.
Comprehensive Fund Analysis
1. HDFC Defence Fund Direct – Growth
When most investment houses were overlooking the defence sector, HDFC launched this pioneering fund in June 2023. Their foresight has paid off handsomely – the fund now commands nearly ₹5,000 crores in assets, a testament to both performance and investor confidence in their approach.
Key Performance Indicators:
- Net Asset Value: ₹21.05
- Three-month Return: 10.58%
- Expense Ratio: 0.91%
- Minimum Investment: ₹100
- Exit Load: 1% if redeemed within 1 year
- Risk Classification: Very High
The fund maintains strategically balanced positions across military aerospace contractors, weapons systems developers, electronics specialists, and communications technology innovators. Unlike its index-tracking competitors, HDFC’s active management allows nimble repositioning as defence policies evolve or geopolitical situations shift.
2. Motilal Oswal Nifty India Defence Index Fund Direct – Growth
Motilal Oswal took a different approach when they entered this space in July 2024. Rather than attempting to outperform through active management, they created a lean, passive instrument that simply mirrors the Nifty Defense Index. Surprisingly – or perhaps not – this streamlined approach has delivered impressive results.
Essential Metrics:
- Net Asset Value: ₹9.02
- Three-month Return: 16.08% (outperforming HDFC’s active approach)
- Expense Ratio: 0.29% (less than a third of HDFC’s fees)
- Minimum Investment: ₹500
- Exit Load: 1% if redeemed within just 15 days
- Risk Classification: Very High
Despite being younger than HDFC’s offering, this fund has quickly amassed substantial assets, proving particularly attractive to cost-conscious investors who question whether active management justifies higher fees in the specialised defence sector.
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3. Aditya Birla Sun Life Nifty India Defence Index Fund Direct – Growth
Launched in August 2024, this relative newcomer also employs an index-tracking strategy focused on the Nifty Defence Index. While similar in approach to Motilal Oswal’s offering, subtle differences in execution and timing have created slightly different performance outcomes.
Performance Profile:
- Net Asset Value: ₹9.85
- Three-month Return: 15.82%
- Expense Ratio: 0.31%
- Minimum Investment: ₹500
- Exit Load: A mere 0.05% if redeemed within 30 days
- Risk Classification: Very High
The fund’s impressive growth trajectory – accumulating nearly ₹400 crores in less than a year – demonstrates the market’s growing appetite for passive defence sector exposure with reasonable fee structures.
4. Groww Nifty India Defence ETF FoF Direct – Growth
The newest entrant in this specialised category arrived in October 2024 with an intriguing twist. Unlike its competitors, Groww’s offering employs a fund-of-funds structure, investing in an ETF rather than directly holding defence stocks. This creates a unique investment vehicle with distinct characteristics.
Fund Characteristics:
- Net Asset Value: ₹10.18
- Three-month Return: 15.57%
- Expense Ratio: An industry-leading 0.21%
- Minimum Investment: ₹500
- Exit Load: 1% if redeemed within 30 days
- Risk Classification: Very High
Though still modest in size (₹34.12 Cr), this fund’s rock-bottom expense ratio and solid initial performance suggest it may attract significant inflows from investors who prioritise fee minimisation above all other factors.
Strategic Rationale for Defence Sector Allocation
- Unprecedented Government Spending – The 2025 defence budget has swelled beyond ₹6 lakh crores, creating a massive revenue pipeline for defence contractors, suppliers, and technology providers.
- Self-Reliance Push – India’s determined pivot from being the world’s largest arms importer toward domestic manufacturing has opened enormous growth runways for local defence companies with established capabilities.
- Persistent Security Challenges – Regional tensions and border security concerns continue to necessitate robust defence capabilities, ensuring consistent investment in military infrastructure regardless of other economic conditions.
- Technological Convergence – Today’s defence systems increasingly incorporate cutting-edge cybersecurity protocols, artificial intelligence algorithms, and autonomous capabilities, dramatically expanding the sector’s technological footprint and future applications.
Conclusion
Defence sector mutual funds represent a compelling tactical allocation for investors seeking exposure to a government-prioritised sector with substantial long-term growth potential. The powerful combination of policy support, technological advancement, and persistent geopolitical challenges creates a robust investment case for measured exposure to this specialised segment.
Written by Promita Ghosal
