Best Defence Sector Mutual Funds for 2025
Mitali Dhoke
Jan 15, 2025 / Reading Time: Approx. 15 mins
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The Indian economy 2025 continues to showcase resilience, supported by robust domestic demand, expanding infrastructure projects, and a surge in manufacturing activities under the government's Make in India and Atmanirbhar Bharat initiatives. '
Despite global headwinds, such as tighter monetary policies by major central banks and ongoing geopolitical tensions, India has emerged as a beacon of growth. Its projected GDP growth rate exceeds 6.5%, outpacing most major economies. Key sectors like infrastructure, energy, and defence drive this momentum, reflecting the country's strategic shift toward self-reliance and long-term sustainable growth.
The year 2025 has brought the defence sector firmly into the spotlight as an investment theme. Escalating geopolitical tensions across regions and the resulting surge in defence spending by major economies have underscored the sector's strategic importance. This evolving landscape has made defence sector-oriented equity mutual funds a compelling choice for investors seeking to capitalize on growth opportunities aligned with both domestic and global economic trends.
Additionally, the inauguration of Donald Trump for another term as the 47th President of the United States which will take place on January 20, 2025 Monday, has further intensified focus on defence spending and national security strategies. Simultaneously, geopolitical conflicts, particularly in Eastern Europe and the Indo-Pacific, have led to increased budget allocations for defence by major economies, including India, the United States, and European nations.
[Read: Are Sectoral and Thematic Funds Worth Adding to Your Portfolio in 2025?]
Heightened geopolitical risks have driven governments to boost defence capabilities, increasing spending on advanced weaponry, cybersecurity, and AI-driven military technologies. In India, the Atmanirbhar Bharat initiative has significantly raised the defence budget, fostering opportunities for domestic companies.
This surge in capital flow has not only accelerated growth for key industry players but also created avenues for equity mutual funds targeting the defence sector to deliver strong returns. For investors, these funds offer a chance to align portfolios with a critical, recession-resilient sector benefitting from long-term growth, as global and domestic defence companies secure major contracts and see rising demand.
Investing in defence sector-oriented equity mutual funds is more than just a financial strategy; it reflects a bet on a sector poised for exponential growth amid evolving security dynamics. As the world grapples with geopolitical volatility and redefines its approach to security and sovereignty, the defence sector stands at the crossroads of innovation and necessity, making it an attractive proposition for forward-looking investors.
Graph: Performance of Nifty India Defence Index on a YTD basis
Data as of January 15, 2024
The securities quoted are for illustration only and are not recommendatory.
Past Performance is not an indicator of future returns
(Source: ACE MF, data collated by PersonalFN Research)
The Nifty India Defence Index has exhibited a strong performance since its inception, reflecting the growing importance of the defence sector in India's economic landscape. Launched to track the performance of companies involved in the defence and aerospace industries, the index has gained significant traction as India increases its focus on self-reliance in defence production and strategic national security initiatives.
[Read: The Key Factors Behind the Recent Volatility in the Indian Equity Market]
The Index has also shown resilience during periods of market volatility, driven by the sector's defensive nature. While the broader equity market may experience fluctuations, the strategic importance of defence ensures that companies in this sector remain integral to India's economic and security priorities.
Here is a curated list of defence-oriented equity mutual funds that cater to investors looking to capitalize on the growth potential of the defence sector. These funds focus on companies involved in defence manufacturing, technology, and related industries benefiting from increasing government budgets and strategic initiatives. By investing in these funds, investors can align their portfolios with a sector poised for long-term growth amidst rising geopolitical tensions and heightened emphasis on national security.
#1 - Aditya Birla SL Nifty India Defence Index Fund
Launched in August 2024, the scheme is a sector-specific index fund designed to provide investors with exposure to India's thriving defence sector. This fund tracks the Nifty India Defence Index, comprising top companies involved in the manufacturing, development, and supply of defence-related products and services.
Currently, the scheme holds an AUM of Rs 377.36 crore and a concentrated portfolio of 17 stocks, wherein a majority are large and mid-caps at (39.88%) and (35.63%) respectively and the remaining 24.18% are small-caps.
Top 10 holdings of Aditya Birla SL Nifty India Defence Index Fund
Company Name |
Allocation (%) |
Bharat Electronics Ltd. |
20.00 |
Hindustan Aeronautics Ltd. |
19.89 |
Solar Industries India Ltd. |
13.78 |
Mazagon Dock Shipbuilders Ltd. |
8.34 |
Cochin Shipyard Ltd. |
7.53 |
Zen Technologies Ltd. |
6.16 |
Bharat Dynamics Ltd. |
5.99 |
Data Patterns (India) Ltd. |
4.23 |
Astra Microwave Products Ltd. |
3.76 |
Garden Reach Shipbuilders & Engineers Ltd. |
2.74 |
Data as of January 15, 2024
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)
With a portfolio that includes companies at the forefront of defence technology and innovation, Aditya Birla SL Nifty India Defence Index Fund is well-positioned to leverage the sector's growth potential driven by rising geopolitical tensions and strategic government policies.
Holding a higher allocation in the scheme's portfolio Bharat Electronics Ltd. is known for its specialization in advanced electronic systems for the armed forces. Hindustan Aeronautics Ltd. a critical player in India's self-reliance mission, supports both military and civilian aviation sectors.
Ideal for investors with a high-risk appetite and a long-term horizon, focused on passive investing strategy the Aditya Birla SL Nifty India Defence Index Fund offers a low-cost structured approach to participating in the expansion of a critical sector with strong macroeconomic and policy tailwinds.
#2 - Motilal Oswal Nifty India Defence Index Fund
The scheme is a thematic index fund designed to provide investors exposure to India's burgeoning defence sector. Launched in July 2024, the fund aims to replicate the performance of the Nifty India Defence Index, which comprises companies that are directly or indirectly engaged in defence and allied activities.
Currently, the scheme holds an AUM of Rs 2,321.31 crore and a concentrated portfolio of 17 stocks, wherein a majority are large and mid-caps at (40.23%) and (35.51%) respectively and the remaining 24.39% are small-caps.
Top 10 Holdings of Motilal Oswal Nifty India Defence Index Fund
Company Name |
Allocation (%) |
Bharat Electronics Ltd. |
20.17 |
Hindustan Aeronautics Ltd. |
20.07 |
Solar Industries India Ltd. |
13.90 |
Mazagon Dock Shipbuilders Ltd. |
7.98 |
Cochin Shipyard Ltd. |
7.60 |
Zen Technologies Ltd. |
6.22 |
Bharat Dynamics Ltd. |
6.04 |
Data Patterns (India) Ltd. |
4.27 |
Astra Microwave Products Ltd. |
3.79 |
Garden Reach Shipbuilders & Engineers Ltd. |
2.76 |
Data as of January 15, 2024
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)
The portfolio of the Motilal Oswal Nifty India Defence Index Fund showcases a strong emphasis on India's leading defence manufacturers and technology providers. The fund's top allocations include key players like Bharat Electronics Ltd. and Hindustan Aeronautics Ltd., reflecting their critical role in defence electronics and aerospace development.
Companies such as Solar Industries India Ltd. and Bharat Dynamics Ltd. highlight the fund's focus on ammunition, missiles, and explosives, while shipbuilders like Mazagon Dock Shipbuilders Ltd. and Cochin Shipyard Ltd. emphasize India's growing naval capabilities. The inclusion of innovative players like Zen Technologies Ltd. and Data Patterns (India) Ltd. signals the rising importance of simulation and electronics in modern defence.
Together, this well-rounded portfolio captures the diverse components of India's defence ecosystem, offering investors exposure to a sector primed for robust growth.
The fund adopts a passive investment strategy, mirroring the underlying index to minimize tracking error while offering a diversified portfolio of defence-related companies. It is an excellent choice for those with a high-risk appetite seeking thematic diversification in their equity portfolio.
Do note that both the aforementioned defence-sector-oriented schemes are passively managed and primarily invest by replicating the underlying Nifty India Defence Index. In addition to these, there are a few actively managed equity-oriented mutual funds that allocate a larger portion of their investments to defence sector stocks.
#3 - HDFC Defence Fund
The scheme is an actively managed equity mutual fund that focuses on investing in companies from the defence and aerospace sectors. The fund seeks to capitalize on the growth opportunities within India's defence industry, which is driven by increased government spending on defence modernization, self-reliance initiatives like Atmanirbhar Bharat, and rising geopolitical tensions.
Currently, the scheme holds an AUM of Rs 4,647.38 crore and a concentrated portfolio of 17 stocks, wherein a majority are large caps (46.34%) and the remaining 7.64% and 41.97% are mid and small-caps. The scheme has been launched in the past year and hence does not hold a long performance track record; however, it carries a higher allocation to small caps which investors may consider before investing.
Unlike passive funds that track an index, HDFC Defence Fund adopts a more selective approach, investing in a carefully curated portfolio of companies that are well-positioned to benefit from these trends.
Top 10 Holdings of HDFC Defence Fund
Company Name |
Allocation (%) |
Bharat Electronics Ltd. |
20.00 |
Hindustan Aeronautics Ltd. |
18.93 |
BEML Ltd. |
8.44 |
Cyient DLM Ltd. |
8.08 |
Solar Industries India Ltd. |
7.64 |
Astra Microwave Products Ltd. |
5.48 |
Premier Explosives Ltd. |
4.09 |
Larsen & Toubro Ltd. |
3.97 |
MTAR Technologies Ltd. |
3.27 |
Avalon Technologies Ltd. |
2.81 |
Data as of January 15, 2024
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)
This fund provides investors with diversified exposure to both large-cap and mid-cap companies involved in defence manufacturing, electronics, aerospace, and related sectors. Given its active management style, HDFC Defence Fund aims to outperform the broader market by identifying and investing in high-potential stocks that stand to benefit from India's long-term defence strategy.
It is suited for investors with a higher risk appetite who are looking for exposure to a sector poised for growth due to government initiatives and global security dynamics.
#4 - HSBC Infrastructure Fund
The scheme is an actively managed equity mutual fund that focuses on investing in companies involved in the infrastructure sector, which is crucial for India's long-term growth. While the fund maintains its core focus on infrastructure, it has a higher allocation to defence sector stocks, reflecting the growing importance of defence in India's strategic priorities. With increasing defence budgets and government initiatives aimed at enhancing self-reliance in defence production, companies within the defence and aerospace sectors have become key beneficiaries of infrastructure investments.
The fund's exposure to defence stocks aligns with its broader investment thesis, capitalizing on India's growing focus on strengthening its security and technological capabilities.
Top 10 Holdings of HSBC Infrastructure Fund
Company Name |
Allocation (%) |
NTPC Ltd. |
7.15 |
Larsen & Toubro Ltd. |
6.65 |
Bharat Electronics Ltd. |
6.60 |
Bharti Airtel Ltd. |
6.59 |
Reliance Industries Ltd. |
4.27 |
Ultratech Cement Ltd. |
4.05 |
Aditya Birla Real Estate Ltd. |
3.15 |
Dixon Technologies (India) Ltd. |
3.05 |
Power Finance Corporation Ltd. |
2.66 |
ABB India Ltd. |
2.48 |
Data as of January 15, 2024
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)
The portfolio of the HSBC Infrastructure Fund is strategically diversified across a range of key infrastructure and defence-related companies. Leading the allocation are NTPC Ltd. and Larsen & Toubro Ltd., both giants in the power and engineering sectors, crucial for India's infrastructure development.
The fund also has significant exposure to Bharat Electronics Ltd., reflecting its focus on the defence sector, along with telecom and energy leaders such as Bharti Airtel Ltd. and Reliance Industries Ltd. Companies like Ultratech Cement Ltd. and Dixon Technologies (India) Ltd. emphasize the fund's broader infrastructure exposure, while firms like Power Finance Corporation Ltd. and ABB India Ltd. contribute to the energy and automation themes.
The fund is suitable for investors looking for a balanced portfolio that benefits from India's ambitious infrastructure expansion while also capitalizing on the increasing government spending in defence. With its strategic allocation to defence sector stocks, the fund offers a diversified yet targeted investment avenue, capturing both the growth of India's infrastructure and the vital role of defence in shaping the country's future.
#5 - Kotak Flexicap Fund
The scheme is an actively managed equity mutual fund that offers a dynamic investment strategy, aiming to provide long-term capital appreciation by investing across a wide range of sectors and market capitalizations. As a flexi-cap fund, it has the flexibility to allocate assets across large-cap, mid-cap, and small-cap stocks, adapting to changing market conditions and growth opportunities.
One notable aspect of the Kotak Flexicap Fund is its increasing allocation to defence sector stocks, which have become a significant part of the portfolio in recent years. With the growing focus on national security and the government's push for self-reliance in defence production, companies in the defence sector are expected to benefit from higher defence budgets and strategic initiatives.
Top 10 Holdings of Kotak Flexicap Fund
Company Name |
Allocation (%) |
ICICI Bank Ltd. |
6.74 |
Bharat Electronics Ltd. |
5.64 |
HDFC Bank Ltd. |
5.63 |
Infosys Ltd. |
4.29 |
Larsen & Toubro Ltd. |
4.08 |
Ultratech Cement Ltd. |
3.97 |
State Bank Of India |
3.75 |
Jindal Steel & Power Ltd. |
3.51 |
Axis Bank Ltd. |
3.38 |
Zomato Ltd. |
2.85 |
Data as of January 15, 2024
The securities quoted are for illustration only and are not recommendatory.
(Source: ACE MF, data collated by PersonalFN Research)
The fund's exposure to the defence sector includes prominent players such as Bharat Electronics Ltd., Hindustan Aeronautics Ltd., and Larsen & Toubro Ltd., all of which are integral to India's defence and aerospace capabilities. This strategic allocation allows the fund to capitalize on a sector poised for sustained growth amid rising geopolitical tensions and India's defence modernization initiatives.
Additionally, the Kotak Flexicap Fund's diversified nature ensures that it doesn't solely rely on the defence sector but also invests in other high-growth areas like technology, infrastructure, and financial services. This balanced approach helps the fund mitigate risks while positioning itself to capture growth from multiple sectors.
With its unique blend of flexibility and sectoral exposure, including a focus on defence, the Kotak Flexicap Fund offers a robust investment option for those looking to diversify their equity portfolios while tapping into emerging opportunities in India's defence industry.
What Lies Ahead for India's Defence Sector?
India's defence sector is poised for significant growth in the coming years, driven by strategic government initiatives aimed at bolstering national security and achieving self-reliance in defence production.
With rising geopolitical tensions globally and a growing focus on modernizing the armed forces, India has increased its defence budget to strengthen its military capabilities. In the Union Budget of FY25, the Ministry of Defence (MoD) has been allocated Rs. 6,21,940.85 crore (approx. USD 75 Billion), the highest among the Ministries.
The Indian government is prioritizing innovative solutions to strengthen the country's defence and security through the Innovations for Defence Excellence (iDEX) initiative. This platform connects start-ups with defence establishments, fostering the development of new technologies and products over the next five years (2021-2026).
The future outlook for India's defence sector remains robust, with several key projects underway, including advanced aircraft, submarines, and missile systems. The government's emphasis on innovation, research, and development in defence technology is expected to lead to significant advancements in the sector, positioning India as a global player in defence manufacturing.
With strategic partnerships with countries like the US, Russia, and Israel, India is also set to benefit from technology transfer and joint ventures that will enhance its defence capabilities. Investors in the defence sector may expect to see continued growth as India works towards strengthening its defence industry and meeting the demands of a rapidly evolving global security environment.
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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.