The HDFC Defence Fund is a thematic mutual fund launched by HDFC Mutual Fund on June 2, 2023. It aims to provide long-term capital appreciation by investing predominantly in equity and equity-related securities of companies engaged in the defence and allied sectors. This fund offers investors an opportunity to participate in India’s growing defence sector, which has been receiving significant attention due to government initiatives promoting indigenous manufacturing.
Key Highlights
- Focuses on India’s booming defence sector.
- Strong 1-year return of 16% (Regular Plan).
- Managed by experienced fund manager Abhishek Poddar.
- Low entry barrier (₹100 minimum investment).
- Aligns with government’s ‘Make in India’ and Atmanirbhar Bharat vision.
Fund Overview
- Fund Name: HDFC Defence Fund
- Fund Type: Open-ended equity scheme following a thematic investment strategy
- Launch Date: June 2, 2023
- Benchmark: NIFTY India Defence Index
- Fund Manager: Abhishek Poddar
- Minimum Investment: ₹100
- Minimum SIP Amount: ₹100
- Exit Load: 1% if redeemed within 1 year; Nil thereafter
About the Fund Manager
Abhishek Poddar is an experienced equity fund manager at HDFC Mutual Fund, known for his sectoral expertise and deep research-driven approach.
Net Asset Value (NAV) and Performance
As of March 17, 2025, the NAV for the Regular Plan (Growth Option) is ₹17.40, and for the Direct Plan (Growth Option), it is ₹17.58.
Returns Since Inception (June 2, 2023):
- Regular Plan: Approximately 36.5%
- Direct Plan: Approximately 33.23%
Note: Past performance is not indicative of future results.
Portfolio Composition
Top Holdings (as of February 28, 2025):
| Company | Sector | Allocation (%) |
|---|---|---|
| Bharat Electronics Ltd. | Defence Electronics | 21.44% |
| Hindustan Aeronautics Ltd. | Aerospace & Defence | 18.77% |
| Solar Industries India Ltd. | Explosives | 11.62% |
| BEML Ltd. | Heavy Engineering | 9.53% |
| Cyient DLM Ltd. | Engineering Services | 5.82% |
Sector Allocation:
| Sector | Allocation (%) |
| Capital Goods | 66.73% |
| Chemicals | 14.76% |
| Communication | 5.63% |
| Construction | 5.60% |
| Services | 3.43% |
| Others | 3.85% |
The portfolio is highly concentrated in the capital goods sector, particularly focusing on companies in defence electronics, aerospace, and explosives. These sectors are central to India’s defence ecosystem, which is expanding rapidly due to increasing government defense spending and national security requirements.
Bharat Electronics Ltd. (BEL), for instance, is a leader in defence electronics manufacturing, while Hindustan Aeronautics Ltd. (HAL) specializes in the design and production of aircraft, helicopters, and associated systems. Both of these companies are pivotal to the country’s self-reliance in defence technology. Solar Industries India and BEML represent other critical components in the defence supply chain, focusing on explosives and heavy machinery, respectively.
Investment Strategy
The HDFC Defence Fund adopts a focused, research-intensive investment strategy aimed at identifying high-growth companies within India’s defence and allied sectors. The strategy is designed to capitalize on structural changes within the sector, driven by government support and a shifting geopolitical landscape.
Capitalizing on Government Initiatives
The fund invests primarily in companies that stand to benefit from key government initiatives such as ‘Make in India’, Atmanirbhar Bharat, and defence procurement reforms. These initiatives aim to reduce India’s dependence on foreign defence suppliers and boost the indigenous production of defence equipment, which creates long-term growth opportunities for companies involved in defence manufacturing, technology, and infrastructure.
Focusing on Indigenous Manufacturing
One of the fund’s core strategies is to target companies actively involved in the domestic production of critical defence equipment. This includes everything from advanced aerospace technologies and defence electronics to heavy machinery and explosives. By focusing on these companies, the fund aligns with India’s goal of becoming self-sufficient in defence production and reducing reliance on imports.
Diversification Across Sub-sectors
While the fund is primarily focused on the defence sector, it maintains a diversified approach within the sector itself. It invests across various sub-sectors like aerospace, defence electronics, engineering services, and capital goods. This diversification helps mitigate risks related to specific industries or companies and offers a balanced exposure to the growing demand for defence products and services across multiple fronts.
Active Stock Selection
The fund manager, Abhishek Poddar, employs a bottom-up approach to stock selection, combining quantitative analysis with qualitative research. The process includes in-depth scrutiny of a company’s fundamentals, its alignment with government policies, and its growth potential within the defence sector. This research-driven approach enables the fund to identify companies that are well-positioned to capitalize on the expanding defence budget and infrastructure development in India.
Risk Management
As part of its investment strategy, the HDFC Defence Fund adopts a disciplined approach to risk management. The fund uses diversification within its portfolio to mitigate risks related to sector-specific or company-specific issues. Additionally, the fund closely monitors changes in government defence policies, market conditions, and global political trends, which could affect the performance of defence companies.
Risk Factors
Investing in thematic funds like the HDFC Defence Fund involves certain risks:
- Sector Concentration Risk: Being a thematic fund, it is heavily invested in a specific sector, which can lead to higher volatility.
- Regulatory Risks: Changes in government policies related to defence procurement and manufacturing can impact the performance of the fund.
- Market Risks: General market fluctuations can affect the NAV of the fund.
Tax Implications
Investors should be aware of the tax implications associated with investing in the HDFC Defence Fund:
- Short-Term Capital Gains (STCG): If units are redeemed within 1 year, gains are taxed at 15%.
- Long-Term Capital Gains (LTCG): If units are held for more than 1 year, gains exceeding ₹1 lakh are taxed at 10% without indexation benefits.
Comparative Analysis with Peer Funds
| Fund Name | 1-Year Return (%) | Expense Ratio (%) | AUM (₹ Cr) |
| HDFC Defence Fund | 16.00% | 1.86% (Regular) | 3,880.46 |
| ICICI Prudential India Opportunities | 12.63% | 0.69% | 23,860 |
| ICICI Prudential Manufacturing Fund | 5.30% | 0.83% | 5,629 |
| Sundaram Services Fund | 12.44% | 0.88% | 3,551 |
| Franklin India Opportunities Fund | 17.97% | 0.59% | 5,517 |
Detailed Comparison: HDFC Defence Fund vs ICICI Prudential India Opportunities Fund
| Parameter | HDFC Defence Fund | ICICI Prudential India Opportunities Fund |
| Fund Category | Thematic (Defence Sector Focus) | Flexi-cap / Opportunities Fund |
| Launch Date | June 2, 2023 | March 30, 2005 |
| Investment Strategy | Sector-specific: Defence & allied | Multi-sector, opportunistic approach |
| Risk Level | High (sector concentration) | Moderate to High (diversified exposure) |
| 1-Year Return (%) | 16.00% | 12.63% |
| Expense Ratio (Regular) | 1.86% | 0.69% |
| Assets Under Management | ₹3,880.46 Cr | ₹23,860 Cr |
| Benchmark Index | NIFTY India Defence Index | NIFTY 500 TRI |
| Minimum Investment | ₹100 | ₹100 |
| Fund Manager(s) | Abhishek Poddar | Sankaran Naren, Priyanka Khandelwal |
| Suitability | Sector-focused investors with high risk tolerance | Investors seeking diversified, flexible exposure |
| Exit Load | 1% if redeemed within 1 year | 1% if redeemed within 1 year |
Who Should Invest?
The HDFC Defence Fund is suitable for investors who:
- Have a high-risk tolerance.
- Are looking to diversify their portfolio with sector-specific investments.
- Believe in the long-term growth potential of India’s defence sector.
- Are willing to invest for a medium to long-term horizon (5 years or more).
- Ideally suited as a satellite allocation (~5-10%) in a diversified equity portfolio.
FAQs
Q: Is this fund suitable for first-time investors? A: Due to its high-risk sectoral exposure, it is better suited for experienced investors with a strong risk appetite.
Q: Can I invest through SIP? A: Yes, the fund allows SIP investments starting at ₹100.
Q: What makes the HDFC Defence Fund different from other mutual funds? A: The HDFC Defence Fund is unique because it focuses specifically on India’s defence sector. While other equity funds invest in a range of sectors, this fund’s concentration on the defence industry makes it a specialized, high-risk, high-reward investment. The fund also targets companies aligned with government defense policies and initiatives, which adds a layer of strategic advantage.
Q: How frequently does the NAV of the HDFC Defence Fund change? A: The Net Asset Value (NAV) of the fund is updated daily, reflecting changes in the market value of the securities it holds. As with most equity funds, the NAV fluctuates based on market conditions, sector performance, and the underlying stocks in the portfolio.
Q: What are the tax implications for this fund? A: As with all equity mutual funds, the HDFC Defence Fund is subject to capital gains tax. Short-term capital gains (STCG), which arise if the units are sold within one year of purchase, are taxed at 15%. Long-term capital gains (LTCG) exceeding ₹1 lakh in a financial year are taxed at 10%, without the benefit of indexation.
Q: Is the HDFC Defence Fund a safe investment option? A: Like all sector-specific funds, the HDFC Defence Fund comes with a higher risk compared to diversified equity funds. It is highly dependent on the performance of the defence sector, and any negative change in government policies, defense budgets, or geopolitical factors could impact its performance. Investors should consider this fund as part of a diversified portfolio and ensure it aligns with their risk tolerance.
Q: What is the expense ratio of the HDFC Defence Fund? A: The expense ratio for the regular plan of the HDFC Defence Fund is 1.86%, which is typical for actively managed thematic funds. This ratio covers the fund’s management and operational costs.
Conclusion
The HDFC Defence Fund offers investors an opportunity to participate in the growth of India’s defence sector, which is poised for significant expansion due to government initiatives and increased defence spending. While the fund has shown promising returns since its inception, investors should be mindful of the inherent risks associated with sector-specific investments. A thorough assessment of one’s risk appetite and investment horizon is essential before investing in this fund.
Disclaimer: Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing.
