Best Defence Sector Mutual Funds in India 2025

India’s stock market is seeing a surge in interest toward sectoral mutual funds, especially in the defence space. Rising geopolitical tensions and government efforts like "Make in India" are pushing more investments into this area. For traders in the Indian market aiming to branch out their investments, the top defence sector mutual funds in 2025 could be a great way to grow your money. These funds target companies in defence manufacturing, aerospace, and related tech—sectors set to boom with more government spending and global needs. Let’s break down the best funds, why they’re appealing to Indian investors, what to watch for, plus their benefits and risks as of May 2025.

Overview of These Defence Sector Funds

Motilal Oswal Nifty India Defence Index Fund Direct Growth
Offered by Motilal Oswal Mutual Fund, this is a passive equity fund that follows the Nifty India Defence Total Return Index. It mirrors the performance of major Indian defence companies involved in manufacturing, tech, and services. Aimed at investors who want to tap into the defence sector’s growth, it uses a low-cost, index-based approach. The fund focuses on keeping tracking errors low, making it an easy option for those wanting to invest in this fast-growing theme.

Aditya Birla Sun Life Nifty India Defence Index Fund Direct Growth
Run by Aditya Birla Sun Life Mutual Fund, this passive equity fund also tracks the Nifty India Defence Total Return Index. It invests in defence-related companies in India to match the index’s returns. The fund suits investors eager to benefit from the sector’s growth, fueled by policies like "Aatmanirbhar Bharat" and bigger defence budgets. It offers a cost-effective way to invest with a focus on long-term gains through a sector-focused, diversified equity portfolio.

Groww Nifty India Defence ETF FoF Direct Growth
Managed by Groww Mutual Fund, this Fund of Funds (FoF) puts its money into the Groww Nifty India Defence ETF, which tracks the Nifty India Defence Index. It’s an indirect route to the defence sector, using an ETF instead of buying stocks directly. This fund is perfect for investors who like the mutual fund setup but want the benefits of a passive, index-tracking ETF. It’s a good pick for those aiming for cost efficiency and diversification within the defence theme.

HDFC Defence Fund
From HDFC Mutual Fund, this actively managed equity fund focuses on the defence sector. Unlike the others, it doesn’t follow an index—instead, the fund manager picks high-potential stocks in defence production, tech, and services. The goal is long-term growth, making it ideal for investors who want a managed portfolio that can adjust to market shifts while targeting India’s defence sector opportunities.

Why Defence Sector Funds Appeal to Indian Investors

Several reasons make the defence sector a hot pick for Indian investors. The government’s focus on self-reliance through "Aatmanirbhar Bharat" and "Make in India" has boosted local defence production. This directly helps companies in the sector, making them a solid choice for mutual funds.

India’s defence budget, expected to top ₹6 lakh crore in 2025, ensures steady orders for defence firms. Companies like Hindustan Aeronautics Limited (HAL) and Bharat Electronics Limited (BEL) have seen big order boosts, lifting their stock prices. This growth makes defence sector stocks appealing for mutual funds.

Geopolitical factors also come into play. With tensions rising in the Indo-Pacific, India is upgrading its military, which benefits defence companies. For Indian investors, these funds offer a way to tap into this growth while spreading their investments beyond typical sectors like IT or FMCG.

Things to Consider While Investing in Defence Funds

Defence sector mutual funds can offer big growth, but Indian traders should think about a few things first:

• Performance and AUM: Choose funds with a steady history and large AUM for stability. For example, HDFC Defence Fund’s ₹5487.27 crore AUM shows strong investor trust.
• Expense Ratio: Active management can mean higher fees in defence funds. Make sure these don’t cut too much into your returns over time.
• Holdings Check: Look at the fund’s investments to ensure it includes top defence stocks like HAL, BEL, or Mazagon Dock Shipbuilders. Diversified holdings lower risk.
• Time Horizon: These funds suit long-term investors (5+ years) since government contracts and projects often take time to play out.
• Market Trends: Global and local geopolitical events can affect the sector. Keep an eye on policy shifts or international relations that might change defence spending.

Advantages of Investing in Defence Funds

For Indian investors, putting money into top defence sector mutual funds has some clear perks:

• Big Growth Potential: India aims to export ₹35,000 crore in defence equipment by 2025, setting up companies for huge growth, which benefits mutual funds.
• Government Backing: Policies supporting local manufacturing mean steady orders for defence firms, giving funds stability.
• Portfolio Variety: These funds let you invest in a unique sector, reducing dependence on common areas like banking or IT.
• Inflation Protection: Defence stocks often hold up well during inflation, as government spending in this area stays steady.
• Global Opportunities: As India becomes a defence exporter, companies are landing international deals, increasing revenues and boosting fund returns.

Risks to Understand

The defence sector has potential, but there are risks to know:

• Geopolitical Swings: If tensions ease or policies shift, defence spending might drop, hurting stock prices and fund performance.
• Regulatory Hurdles: Defence contracts face strict rules, and delays or cancellations can hit company earnings, causing fund volatility.
• High Prices: Stocks like HAL and BEL are trading at high valuations due to investor hype. A market dip could lead to short-term losses.
• Sector Focus Risk: These funds aren’t as diversified as broad-market funds. A defence sector slump could hit your portfolio hard.
• Long Wait Times: Defence projects often take years, which can delay company profits and affect short-term fund results.

To manage these risks, consider putting only a portion of your money into defence funds and balancing it with more diversified equity funds.

Conclusion

For Indian stock market traders, the top defence sector mutual funds in 2025 are a great chance to jump into a fast-growing sector. Funds like HDFC Defence Fund and Motilal Oswal Nifty India Defence Index Fund give you access to leading defence stocks, backed by government support, rising budgets, and global demand. But you’ll need to balance the benefits, like strong growth and diversification, with risks such as geopolitical changes and regulatory issues.As India strengthens its defence capabilities, these funds could be a smart addition to your portfolio in 2025.