Introduction
India's defence sector is in a position of substantial growth, driven by interventions such as AtmaNirbhar Bharat and a substantial defence budget. The government has set the path to increasing defence production to ₹3 lakh crore by FY 2029, and export increases to ₹50,000 crore. Defence sector mutual funds are becoming attractive to Indian investors. Defence sector mutual funds invest in companies across the spectrum of companies forming India's defence ecosystem, covering aerospace to shipbuilding. This article will showcase the best defence sector mutual funds to invest in for 2025 based on historical returns for investment for investors, describing their benefits, risks and considerations.
Why Defence Sector Funds Appeal to Indian Investors
Defence sector mutual funds are equity funds that focus on companies involved in defence manufacturing, technology, and supply chains, such as Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL), and Mazagon Dock Shipbuilders. The funds are interesting because of India's increasing spending on defence—₹1,62,600 crore during 2023–24—and a $138 billion modernisation pipeline until 2032. In contrast to the more cyclical sectors, defence has long-term, stable contracts with government customers, which is attractive to investors and makes it relatively recession-proof.
For Indian investors, these funds provide a chance to diversify away from other asset classes while being in a sector that aligns with national priorities like Make in India. However, because of their sectoral focus, they will inherently have higher volatility, so it will be incumbent upon the investor to investigate historical performance and fund details such as Net Asset Value (NAV), expense ratios, and Assets Under Management (AUM).
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Top Defence Sector Mutual Funds for 2025
Based on historical returns and their secular relevance to the Indian market, three such names seem likely to be promising defence sector mutual funds for 2025.
2. Groww Nifty India Defence ETF
3. Aditya Birla Sun Life Defence Fund
Advantages of Investing in Defence Funds
The defence sector mutual funds can offer Indian investors some unique advantages:
• Growth Potential: Government policies and exports create plenty of revenue for defence companies in this segment.
• Stability: With long-term government contracts, defence funds have stable cash flows, which protect them from market turbulence.
• Diversification: Defence funds can improve your performance while you have a heavy equity or debt portfolio.
• Alignment with Indian Goals: Investors who are inclined to return their funds to the country can do so through defence funds, which symbolise India's vision of self-reliance and will appeal to more patriotic investors.
Risks to Understand
Defence funds come with risks that Indian investors must evaluate:
• Geopolitical Risks: Border tensions, such as those with neighbouring countries, can cause stock price volatility.
• Policy Shifts: Changes in SEBI regulations or defence budget cuts may impact returns.
• Market Volatility - Sectoral funds tend to be more volatile than diversified funds or typically large-cap funds.
• Project Execution Delays - If defence projects, such as those of indigenous aircraft carriers, get delayed, they could impact revenue for the company and the fund's performance.
Conclusion
Defence sector mutual funds are a doorway into India's fast-growing defence industry, providing a mix of stability and growth potential for Indian investors. However, with this level of returns comes volatility and geopolitical risk, making planning essential. Using a reliable platform to build a sustainable portfolio based on SEBI guidelines can help you invest effectively and use these defence funds to grow your wealth in 2025. Always do your due diligence and consult with professionals to invest money for your goals.
Disclaimer: Past performance may not be indicative of future performance. Always speak with an advisor registered with SEBI to assist you with your investments.
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