Starting from July 22, 2024, HDFC Mutual Fund has announced changes to its HDFC Defence Fund, and will no longer accept any fresh requests for systematic investment plans (SIPs), including Switch-ins or new systematic transfer registrations.
However, any SIPs and systematic transactions set up before this date will continue as usual, without any changes, according to HDFC Mutual Fund.
These adjustments follow an earlier update from June 6, 2023, which had already restricted lumpsum investments and systematic transactions.
What is HDFC Defence Fund:
HDFC Defence Fund focuses on investing in companies related to the defence sector in India and is the only mutual fund in India that specifically targets investments in defence-related companies. It raised Rs. 1,000 crore during its New Fund Offer (NFO).
Recently, HDFC Mutual Fund has faced challenges in deploying these funds due to over-valuation concerns. To manage this, HDFC MF has already capped SIP investment in the sectoral fund at Rs. 10,000 per month.
Managed by Abhishek Poddar and Dhruv Muchhal, the HDFC Defence Fund is benchmarked against the Nifty India Defence Index Total Return Index (TRI). It currently holds 21 stocks in its portfolio, with the top five stocks making up 63 percent of the fund’s holdings.
Specifically, Hindustan Aeronautics accounts for 22 percent and Bharat Electronics Ltd. accounts for 21.7 percent of the AUM.
Since its launch in June 2023, the HDFC Defence Fund has attracted considerable interest from retail investors, especially due to increased government focus on defence spending and promoting domestic production.
This attention has driven up stock prices in the defence sector, and as of July 8, the fund has delivered a return of 140 percent over the past year, making the scheme the top performer in the sectoral or thematic category.
What’s the News:
Starting from the effective date, the HDFC Defence Fund will not accept new registrations for SIPs, including switch-ins, and Systematic Transfer Plan (STP) registrations are also restricted.
In June 2023, the fund halted lumpsum investments but allowed monthly SIPs up to Rs. 10,000 per investor. This adjustment was likely made to handle the high inflow and to maintain the performance standards of the fund.
Currently, the HDFC Defence Fund manages assets worth Rs. 3,233 crore and has delivered a return point-to-point of 130 percent.
What are the Reasons:
Halting lumpsum investments and limiting systematic transactions are likely steps to manage the growth and performance of the fund.
There was a high inflow during the NFO and has since gotten a lot of interest, making it important to manage the fund’s optimal capacity so it can be managed effectively.
How will it impact the investors:
For current investors, SIPs and STPs that were registered before this change will continue without any interruptions. Investors can still redeem or switch out their investments freely.
But new investors who want to start investing in the fund through SIPs or lumpsum investments will have to consider other funds for now or wait for updates from HDFC Mutual Fund.
Nifty India Defence Index performance in last 12 months:
Over the last one year, the Nifty India Defence Index has shown impressive growth, with a compounded annual growth rate (CAGR) of 183.5 percent and has also gained 192 percent during this period.
In comparison, the Nifty 50 index grew by 26 percent during the same period. This highlights that in 2024, the Nifty India Defence Index has significantly outperformed the Nifty 50 benchmark.
Written by Shivani Singh
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