Defence Sector Mutual Fund – Detailed Analysis with Benefits & Risks

• Sushil Bajaj |
• 2 September 2025 |

When investors consider sectoral mutual funds, they tend to see themes such as banks, pharma, or IT. But the interesting new theme is the Defence Sector Mutual Fund. The funds would invest in the businesses that constitute India’s expanding defence & aerospace industry. With initiatives such as the government’s “Make in India” programme and increasing defence spending, the segment is gaining attention from investors interested in the growth story of the strategic sector.

What is a Defence Sector Mutual Fund?

Defence Sector Mutual Fund is a thematic mutual fund that deals largely with those companies that are involved in defence manufacture, aerospace, ship-building, drones, and associated technology. The fund particularly wants to benefit from the growth prospect of the defence industry as India aims to become self-sufficient in defence production.

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Main Characteristics of Defence Sector Mutual Funds

• Sector-Specific: Provides funds solely to defence and aerospace companies.
  
• High Growth Potential: Defence is a priority sector with rising government spending.
  
• Volatility: Returns may fluctuate as it depends on one specific sector.
  
• Long-Term Play: Best suited for investors with a long-term horizon.
  

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The Advantages of Investment in Defence Sector Mutual Funds

• Growth Opportunity – India’s defence spending is on the rise annually, thus stimulating demand for defence equipment and technology.
  
• Government Support – Policies like “Atmanirbhar Bharat” and incentives for private players support the sector.
  
• Portfolio Diversification – Provides exposure to a unique and underrepresented sector in mutual fund portfolios.
  
• Potential Wealth Creation – As the global defence exports continue to rise, the players in this sector could reap strong long-term gains.
  

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Risks of Defence Sector Mutual Funds

• Sector Concentration Risk – Since it is thematic, the fund is quite concentrated on the defence sector.
  
• Regulatory Risks – Defence is highly regulated, and government policy changes may impact companies.
  
• Volatility – The volatility will be higher than that of diversified equity funds.
  
• Not Good for the Short-Term – Long-term vision necessary.
  

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Who Should Invest in Defence Sector Mutual Funds?

Defence Mutual Funds would be appropriate for:

• Investors with high-risk appetite.
  
• Those looking for thematic exposure in their portfolio.
  
• Long-term investors who wish to benefit from India’s defence growth story.
  
• Investors already holding a diversified portfolio and wanting to add a sector-based theme.
  

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Defence Sector Mutual Funds Available to Invest

• Motilal Oswal Nifty India Defence Index Fund-Reg(G)

• Aditya Birla SL Nifty India Defence Index Fund-Reg(G)

• HDFC Defence Fund-Reg(G)
  
  

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How to Invest in Defence Sector Mutual Funds?

• Through SIP (Systematic Investment Plan) for regular investing.
  

• Lump sum investment if you want to take advantage of market corrections.
  

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Q1. Do Defense Sector Mutual Funds offer safety?
A. They pose greater risk than diversified equity funds as their performance relies on a single sector.

Q2. Does a beginner purchase Defence Sector Mutual Funds?
A. Not suitable for novices. It is better suited to those with experience.

Q3. What is the minimum investment amount?
A. It is possible to begin even with just ₹500 by SIP in the majority of funds.

Q4. How long should I stay invested in a Defence Sector Mutual Fund?
A. At least 5–7 years for meaningful returns.

Q5. Are Defence Sector Mutual Funds tax-efficient?
A. They’re taxed just like any other equity mutual fund — 20% for short term (upto 1 year) & 12.5% long term (above 1 year, gains above ₹1.25 lakh).

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It is a very intriguing addition to the portfolio if you believe in the growth potential of India’s defence industry. As it is sectoral in nature, however, it should be part of just a percentage of overall investments. As an investment piece for many investors, the funds should make up a satellite rather than the dominant holding.

Disclaimer- Mutual Fund investments are subject to market risks, please read scheme documents before investing