Summary
Defence funds primarily invest in companies that are related to India’s defence and aerospace industry. Although they can be good for capital appreciation, they provide targeted exposure, but also create higher concentration risk.
The HDFC Defence Fund Direct Growth, which has a 3 Year CAGR of 41.27%. The second highest AUM is of Motilal Oswal Nifty India Defence Index Fund Direct, with ₹5,176 crore Cr AUM. Investors should research returns, expense ratios, benchmarks, portfolios, structures, AUM, and risks before comparing funds.
Defence funds are more appropriate for investors with a long-term investment horizon and a high risk appetite. It does not mean that defence funds will automatically replace diversified core funds.
Defence mutual funds in India have been gaining attention due to rising defence spending, domestic production, exports, and the government’s policy of self-sufficiency. In the Union Budget 2026-27, the Ministry of Defence received a record allocation of 7.85 Lakh crore, marking a 15.19% increase over the FY 2025-26 budget estimate.
Defence mutual funds give investors a way to invest in companies aligned with the theme through a professionally managed or index-based portfolio.
Investors should keep in mind that these funds are relatively new, the first dedicated defence-sector mutual fund was HDFC Defence Fund, in June 2023. All the funds in this sector use Nifty India Defence TRI as a benchmark.
Hence, this list includes all the existing dedicated defence mutual funds, including index funds, ETFs, and ETF Fund of Funds,
Best 10 Defence Mutual Funds: Quick Comparison
The following table provides a quick comparison of the 6 defence mutual funds available in this sector, ranked based on the AUM as of 24th August, 2026
| Fund Name | 3 Yr CAGR | Benchmark 3 Yr return | AUM | Expense ratio | Minimum SIP | Risk |
| HDFC Defence Fund-Direct growth | 41.27% | 47.47% | ₹10,709 Cr | 0.86% | ₹100 | Very High |
| Motilal Oswal Nifty India Defence Dir | NA | 47.47% | ₹5176 Cr | 0.51% | ₹500 | Very High |
| Aditya Birla Sun Life Nifty India Defence Index Fund- Direct Plan | NA | 47.47% | ₹1284 Cr | 0.28% | ₹500 | Very high |
| Axis Nifty India Defence Index Fund Dir | NA | 47.47% | ₹304 Cr | 1.10% | ₹100 | Very High |
| Groww Nifty India Defence ETF FoF Dir | NA | 47.47% | ₹144 Cr | 0.12% | ₹500 | Very High |
| Mirae Asset BSE India Defence ETF FoF Dir | NA | 47.47% | ₹102 Cr | 0.11% | ₹100 | Very High |
Top 10 Defence Mutual Funds in India
The following Defence mutual funds analysis covers performance, costs, risk, benchmark and portfolio concentration.
1. HDFC Defence Fund Direct Growth
HDFC Defence Fund Direct Growth is a theme-based equity fund that invests in firms operating in the Indian defence and aerospace sectors. As per the figures provided, it has a 3-year CAGR of 41.27% and an AUM of ₹10,709 crore. The fund’s expense ratio is 0.86%, and it has a minimum SIP of ₹100. Since this fund is rated Very High risk, it will show significant price fluctuation. This fund does not include any distributor fees as it is a direct plan. It may provide exposure to the defence theme, which is also dependent on government expenditure and orders from the defence department.
- Strengths: 41.27% 3-year CAGR and ₹10,709 crore AUM, and a minimum SIP of ₹100 makes it easy for investors to invest.
- Drawbacks: It is a very high-risk fund, and its exposure can cause significant volatility. The expense ratio of 0.86% is high compared with those of other defence index funds.
2. Motilal Oswal Nifty India Defence Index Fund Direct
Motilal Oswal Nifty India Defence Index Fund Direct is an index fund that provides exposure to firms belonging to the Nifty India Defence Index. The fund has an AUM of ₹5,176 crore, an expense ratio of 0.51% and a minimum SIP of ₹500, as per the statistics presented above. It falls under the Very High risk category. Given that the fund is an index fund, its strategy and performance can be easily predicted as long as there are no deviations from index tracking due to expenses. Nonetheless, the investors will still have to bear the risk of investing in one particular sector.
- Strengths: Large ₹5,176 crore AUM and an index-based investment strategy expose investors to multiple firms within a particular sector.
- Drawbacks: Its sector-focused portfolio offers less diversification than broad-based equity funds.
3. Aditya Birla Sun Life Nifty India Defence Index Fund Direct Plan
Aditya Birla Sun Life Nifty India Defence Index Fund Direct Plan is an index fund that invests in companies in the Nifty India Defence Index. The asset under management, expense ratio, and minimum SIP of the said fund are ₹1,284 crore, 0.28%, and ₹500, respectively. The fund’s risk category is Very High. The fund’s low expense ratio may be regarded as one of the most significant features for long-term investors, but because it is sector-specific, it is characterised by higher volatility than diversified equity funds.
- Strengths: Low expense ratio of 0.28% as compared to many other funds.
- Drawbacks: The fund has limited long-term performance history
4. Axis Nifty India Defence Index Fund Direct
The Axis Nifty India Defence Index Fund Direct is an index fund that provides exposure to the Indian defence sector. It has an AUM of ₹304 crore, an expense ratio of 1.10%, and a minimum SIP of ₹100. It is categorised as a Very High risk. The Axis Nifty India Defence Index Fund Direct offers a ₹100 minimum SIP, which is ideal for investors willing to invest small amounts. On the other hand, the fund has the highest expense ratio among the six funds at 1.10%. The relatively lower AUM and Very High risk of the fund also need to be considered.
- Strengths: ₹100 minimum SIP, making it suitable for small investors. Focused exposure to companies operating in the defence industry using an index fund.
- Drawbacks: Its 1.10% expense ratio is the major risk for investors
5. Groww Nifty India Defence ETF FoF Direct
Groww Nifty India Defence ETF FoF Direct allows investors the chance to gain exposure to the defence industry by investing in the underlying defence ETF. The fund’s AUM is ₹144 crore, and its expense ratio is 0.12%. The minimum SIP investment for the fund is ₹500. The fund’s risk level is Very High. With the help of the fund-of-funds strategy, investors gain easy exposure to the defence theme through the underlying defence ETF, rather than investing directly in defence stocks. The very low expense ratio is one of the most appealing aspects of the fund.
- Strengths: Very low 0.12% expense ratio and exposure to the defence theme through the underlying ETF. An easy way to gain exposure to the defence theme with a minimum SIP of ₹500.
- Drawbacks: Investors should understand the fund-of-fund structure and the costs associated with the ETF
6. Mirae Asset BSE India Defence ETF FoF Direct
Mirae Asset BSE India Defence ETF FoF Direct is a fund of funds with exposure to India’s defence sector. This fund has an AUM of ₹102 crore, an expense ratio of 0.11% and a minimum SIP of ₹100. This is a Very High-risk fund. With a low expense ratio and an SIP of only ₹100, this could be considered by the investor for exposure to the defence sector. But with its ₹102 crore AUM being the lowest among all six funds, and its concentrated sector exposure, there will be significant volatility in this fund’s performance.
- Strengths: Very low 0.11% expense ratio and minimum SIP of only ₹100.
- Drawbacks: It is a new fund; hence, it has limited data
How did we select these Defence Funds?
Selecting appropriate mutual funds from the defence category requires much more than assessing performance. We have considered performance, risk, expense, fund structure, portfolio composition, and track record to make a fair comparison of the choices available to investors.
- Defence Exposure: Mutual funds that invest in India’s defence and aerospace industry or track a defence-based index were considered.
- Expense Ratio: Consideration of expense ratios was also necessary when comparing funds that tracked the same index.
- Risk: Risk was high or very high across all dedicated defence funds, as they are sector-specific.
- Portfolio: Not only the companies held in the portfolio but also their exposure to the leading defence companies were considered.
- Fund Structure: We have compared different types of funds, such as direct funds, regular plans, ETFs, and FoFs, separately, as they differ in their costs and investment strategies.
Defence Funds Vs Other Fund Categories
Defence funds are thematic equity funds, so they are very different from the diversified categories such as large-cap, flexi cap, multi cap, or balanced funds
| Fund category | Investment Focus | Risk Level | Key Feature |
| Defence mutual funds | Defence, aerospace, and related companies | Very High | Focused exposure to the defence sector |
| Large-cap Funds | Large, established companies | High | Focused on relatively established businesses |
| Flexi-cap Funds | Large-mid, and small-cap companies | High | Flexible allocation across market caps |
| Multi-Cap Funds | Large-mid, and small-cap stocks | Very High | Diversified across market capitalisations |
| Index Funds | Companies forming a specific market index | High | Passive investment approach |
| Hybrid Funds | Combination of equity and debt | Moderate to High | Combines growth and fixed-income exposure |
Benefits and Risks of Defence Mutual Funds
India’s defence mutual funds can provide investors with targeted exposure to the country’s defence and aerospace sector. However, the focused nature of mutual funds could prove riskier for investors than diversified mutual funds.
Benefits:
- Targeted sector exposure: Investors can gain exposure to multiple defence-focused companies with the help of mutual funds.
- Business growth: Higher defence spending, manufacturing and exports from the sector can help boost business in the sector.
- Professionally managed: Actively managed defence funds are overseen by professional fund managers.
- Multiple companies across themes: Rather than investing in only one company in the defence industry, investors can invest in multiple companies in the sector.
- Low minimum investment: Investors can make small investments through SIP or lump sum.
Risks:
- High Concentration Risk: Since these mutual funds operate within a single industry, any negative change in the defence industry will have a significant impact on their performance.
- Very High Market Risk: Defence mutual funds typically fall under the Very High risk category, with volatile prices.
- Policy Risk: Changes in defence budgeting, purchasing policies, regulations, or government directives could affect companies in the sector.
- Overvalued Risk: Defence shares are often overvalued when expectations for their future earnings are high.
- Limited Performance History: Indian defence mutual funds have been operating for a shorter period compared to other mutual funds.
- Geopolitical Risk: Changes in geopolitics, war, and defence agreements may affect defence companies and, consequently, their stock prices.
Who should consider and avoid Defence mutual funds?
Even though the funds are relatively new, and none of them crossed 5 years yet, due to short-term volatility, the funds are suitable for:
- Investors interested in gaining exposure to the Indian defence manufacturing industry and related companies, as well as those aware of the underperformance of thematic funds compared to equity markets over long periods.
- Defence mutual funds could be unsuitable for investors who require their money within one or two years, cannot withstand significant losses, and are creating their only mutual fund portfolio.
A defence fund should not be picked up just on account of its impressive historical performance. The HDFC Defence Fund had improved performance over the three-year period until July 2026, but this does not imply future repetitions
How to choose a Defence mutual fund?
Comparing defence funds using their one-year returns is not the way to go.
- Returns: Investors must evaluate the annualised returns relative to the fund’s benchmark and for how long the fund has been operating.
- Risk: Defence mutual funds are very risky, so investors should be able to stick to the investment during market corrections.
- Cost: Investors should consider the expense ratio, especially for passive funds that track similar indices. It can give the fund an edge with lower expenses, provided tracking is of the same quality.
- Portfolio: Investors must evaluate the fund’s exposure to leading defence companies and assess whether it has a high concentration.
- Benchmark: Most products benchmark against the Nifty India Defence TRI index. Before investing in the fund, investors should know the index’s composition. The Nifty India Defence Index comprises companies that fall under the defence theme in India.
- Fund manager: It is relevant for active funds like HDFC Defence Fund. For index funds, tracking quality and expenses are more important than active management skills.
SIP Vs Lump sum for defence funds
Both SIP and Lump-sum investing can be used to invest in defence mutual funds. The right approach depends on your income, available funds, and risk tolerance.
| Factor | SIP | LumpSum |
| Meaning | Invests a fixed amount at regular intervals | Invests a large amount at one time |
| Investment amount | Smaller, regular investments | Larger one-time investment |
| Best suited for | Investors with regular monthly income | Investors with a sizeable surplus |
| Main limitation | May generate lower returns if markets rise continuously | Greater impact from short-term market falls |
| Example | ₹ 5000 every month | ₹ 60,000 invested at once |
Direct Vs Regular Defence mutual funds
Direct and Regular plans generally invest in the same mutual fund scheme, but their costs and investment routes are different. Understanding these differences can help investors choose a plan that suits their needs.
| Factor | Direct Defence Mutual Fund | Regular defence Mutual fund |
| Investment route | Directly through the AMC or a direct investment platform | Through a distributor or intermediary |
| Expense ratio | Generally lower | Generally higher |
| Distributor commission | No distributor commission | Distributor commission is included in the fund’s expense |
| NAV | Separate NAV from regular plan | Separate NAV from direct plan |
| Long term cost | Lower | Higher |
Taxation of Defence mutual funds
The following table shows the taxation applicable to Defence mutual funds as of 24th August, 2026.
| Holding Period | Tax Treatment |
| Up to 12 months | Short-term capital gains taxed at 20% |
| More than 12 months | Long-term capital gains exceeding ₹1.25 lakh in a financial year are taxed at 12.5% |
| LTCG up to ₹1.25 lakh | Exempt, subject to applicable conditions |
Other Best Mutual Fund Categories
Besides the funds discussed above, investors can also explore other defence-focused options
FAQs
Some of the best-performing thematic funds for defence include as of 24th August, 2026 is HDFC Defence Fund – Direct Plan, Motilal Oswal Nifty India Defence Dir, Aditya Birla Sun life Nifty India Defence Index Fund Dir. The performance of a fund changes over time; hence, an investor must analyse it before investing.
If you are a long-term investor interested in exposure to India’s defence and aerospace sector, investing in defence mutual funds might be suitable for you. But these are thematic funds and carry very high risk.
As of 24th August, 2026 HDFC Defence Fund-Direct Plan Dir is the best-performing Defence mutual fund, having a 3-year return of 41.27%, but keep in mind that past performance does not necessarily indicate future performance.
To select the best defence mutual fund, first look at performance, expense ratio, assets under management, the fund’s portfolio, benchmark, and investment strategy. You have to determine whether it is an actively managed index ETF or a fund of funds. But the most important thing is to select a mutual fund that suits your risk profile and investment objective.
It may suit those with a high risk tolerance who can invest for a relatively long period, say, five years or more. It can also be seen as one of the thematic or satellite investments within their diversified portfolio. Those looking for stability in their investments should stay away from this option.
The best-performing defence mutual fund as of 24th August, 2026 was Motilal Oswal Nifty India Defence Dir, which gained 26.14% in the last one year. There were other defence index funds/ETFs that came close to this one. The one-year performance can fluctuate quite a bit.
No. As defence mutual funds are invested predominantly in Equity, they are not 100% safe, given the various risks associated with Equity. The defence funds are very risky in nature and are considered Very High risk. The NAV can decline considerably due to stock market corrections and weaknesses in the Defence sector.
It is not the right time to invest in a defence fund. The investor should focus more on their investment horizon and risk appetite rather than attempting to catch the market bottom. SIP investing will help spread the investment across various price levels.
A defence mutual fund and a fixed deposit cater to different investor requirements. Defence funds have a much better chance of growth compared to FDs; however, they carry a very high market risk. The FDs provide more assured returns and are less risky in nature.
