Defence Sector Mutual Funds in India 2025: 64% Returns in 90 Days! Should You Invest Now?

India's defence sector mutual funds are taking off — quite literally. Over the last three months, several mutual funds focused on defence and aerospace companies have posted jaw-dropping returns, some exceeding 64%. This sudden explosion in performance has caught the attention of retail investors across the country. But as with any investing trend, the big question remains:

Is it too late to invest, or is this just the beginning of a multi-year opportunity? Defence sector mutual funds

In this comprehensive guide, we take a deep dive into the world of defence mutual funds in India. We’ll break down the top-performing schemes, their underlying indices, performance metrics, pros and cons, and whether it makes sense to invest now — especially through a Systematic Investment Plan (SIP).

What Are Defence Sector Mutual Funds?

Defence mutual funds are sectoral or thematic mutual funds that invest in companies involved in India’s defence and aerospace industry. These include manufacturers of aircrafts, ships, submarines, radars, missiles, electronics systems, and other defence equipment.

Key Characteristics: Defence sector mutual funds

• These are highly focused, thematic investments.

• Exposure is typically in listed Indian defence companies such as HAL, BEL, Mazagon Dock, Bharat Dynamics, and Cochin Shipyard.

• Funds may be passively managed (via ETFs or Index Funds) or actively managed (where fund managers select stocks).

The Defence Mutual Fund Boom – By the Numbers

Top Performing Funds (as of mid-2025):

These funds have seen explosive growth, attracting over ₹5,000 crores in investor inflows over just the last 6 months.

What Is the Nifty India Defence Index?

The Nifty India Defence Index is a specially constructed benchmark consisting of 18 listed Indian companies involved in defence production and services. These include:

• HAL (Hindustan Aeronautics)

• BEL (Bharat Electronics)

• Mazagon Dock Shipbuilders

• Cochin Shipyard

• Bharat Dynamics

• Paras Defence & Space

• Solar Industries

• Data Patterns

• MTAR Technologies

• L&T (Defence Division)

Key Features:

• Market-cap weighted

• Top 5 stocks constitute ~70% of index weight

• Rebalanced semi-annually

All passive mutual funds track this index — meaning returns and portfolio overlap are nearly identical among these funds.

Active vs Passive Defence Funds

Only one active defence mutual fund exists currently: HDFC Defence Fund. The rest are passively tracking the index.

Active Fund (HDFC):

• Handpicked portfolio by fund manager

• Flexibility to over/underweight stocks

• Potential to outperform in volatile markets

• Higher expense ratio (1.5%–2%)

  
  

  

Passive Funds:

• Track the index exactly

• Lower expense ratio (~0.25%–0.75%)

• Suitable for low-maintenance, cost-conscious investors

If you’re unsure, passive funds are a great entry point. But HDFC’s active fund could outperform over 3–5 years if the fund manager picks the right winners.

What’s Fueling This Defence Rally?

1. Geopolitical Tensions:

India is strengthening its military presence in response to tensions with China and border disputes.

2. ₹40,000 Crore Emergency Procurement:

The Indian government approved emergency defence procurements under Operation Sindoor — directly benefiting listed defence companies.

3. Strong Q4 FY25 Earnings:

• HAL: 30% YoY growth

• BEL: 24% YoY jump in profit

• Mazagon Dock: Doubled in 3 months

4. Make in India Push:

Defence imports are being reduced. Government is focusing on self-reliance. Over 100+ items now have import bans.

5. Export Boom:

India’s defence exports have risen 10x in last 6 years, reaching ₹16,000 crore.

6. Retail Participation & FOMO:

Massive SIP inflows and social media buzz have amplified investor interest.

Risks of Investing Now

Despite the momentum, investing in defence funds now isn’t without risk.

Valuations Are Stretched:

• HAL: Trading at ~102x earnings

• BEL: Near all-time high

• Mazagon Dock: Doubled in 90 days

Sector Rotation Risk:

Once momentum fades, sectoral funds can see sharp pullbacks.

Timing Is Crucial:

Late entrants often face poor returns. SIPs are better than lump sums at this stage.

SIP vs Lump Sum – Which Is Better Now?

Strategy	Suitable For
SIP	Long-term investors, risk-averse
Lump Sum	Aggressive investors after correction

Recommendation:

• Start SIPs of ₹1,000–₹5,000/month

• Avoid lump sum unless market corrects 10–15%

• Review allocation every 6 months

Pros and Cons Summary

✅ Pros:

• High-growth strategic sector

• Government-backed reforms

• Strong export potential

• Proven recent performance

• Hedge against global instability

  
  

❌ Cons:

• Sector-specific concentration risk

• Limited diversification (same 5–6 stocks dominate)

• Heavily news-driven

• High valuations = entry risk

Who Should Invest in Defence Funds?

✅ Invest If:

• You are comfortable with short-term volatility

• You have other diversified mutual funds

• You believe in India’s long-term defence story

❌ Avoid If:

• You are chasing past returns

• You don’t understand thematic investing

• You need money in <3 years

Defence Stocks vs Defence Mutual Funds

Feature	Defence Stocks	Defence Mutual Funds
Return Potential	High	Moderate to High
Risk Level	Very High	Moderate
Stock Selection	DIY	Fund manager / index
Diversification	Low	Medium (within sector only)

Final Verdict – Is It Too Late to Invest?

Not necessarily. But timing matters.

Defence mutual funds are no longer cheap — but they could still offer decent long-term returns, especially through SIPs. Avoid going all-in. Instead, treat these funds as satellite allocations — add them to your portfolio, don’t replace your core funds.

How to Invest in Defence Mutual Funds

You can invest via:

• Groww

• Zerodha Coin

• Paytm Money

• Kuvera

• Direct AMC websites (HDFC, Motilal Oswal, Aditya Birla SL)

Search for:

• Groww Nifty India Defence ETF

• HDFC Defence Fund - Direct Plan - Growth

• Motilal Oswal Nifty India Defence Index Fund

Conclusion

The Indian defence sector is on the rise — and defence mutual funds are reflecting that optimism. While 60%+ short-term returns are impressive, sustainable gains will depend on government policies, earnings growth, and global sentiment.

Invest wisely. Start small. Diversify always.

If you’re bullish on India’s defence ecosystem, SIP into these funds for 5–10 years — and review your progress every 6–12 months.

Disclaimer: This article is for informational purposes only and is not investment advice. Please consult a SEBI-registered advisor before making financial decisions. Past performance is not indicative of future returns.