Driven by increasing authorities' spending, strategic policy tasks like Aatmanirbhar Bharat, and developing defence exports, the defence zone has become one of the most interesting investment topics in India's inventory markets. Mutual fundinvestors who seek centred publicity to companies that stand to benefit from India's defence modernization narrative are drawn to this long-term increase trajectory. Based on past performance, industry traits, and long-term investor suitability, we look at the first-class defence region mutual funds for 2026 in this blog.

Why Defence Sector Mutual Funds? — A Strategic Opportunity

Accelerated capital allocation and policy emphasis on home manufacturing have contributed to India's first-rate growth in defence spending. Compared to extra general indices, this weather has made it feasible for defence-associated equities and thematic funds to provide substantial returns over short and medium time durations.

Key growth drivers:

• Surge in Domestic Production & Exports: Defence production and exports have expanded rapidly, enabling thematic funds to harness gains from multiple listed defence manufacturers and allied companies.
• Thematic Portfolio Dynamism: Unlike broad market funds, defence-themed schemes concentrate on a focused set of companies, positioning them to benefit more when the sector outperforms.
• Rising Retail Interest: Recent market momentum in defence stocks and ETFs shows robust investor appetite for this investment theme.

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Top Defence Sector Mutual Funds to Watch for 2026

1. Motilal Oswal Nifty India Defence Index Fund

The top defence organizations in India are protected in the Nifty India Defence total return Index, which is tracked by way of the passive index fund Nifty India Defence Index Fund. By imparting extensive publicity to strategically considerable defence shares, the fund seeks to imitate the performance of the underlying index. It outperformed many of its competitors in December 2025, delivering ~19.85% 1-year returns. Traditionally, financials that make up this index have shown double-digit gains over short and medium time horizons; a few more current ETF variations have even achieved 30% in only six months. For investors who aid the long-term structural expansion of India's defence enterprise, this fund is ideal. It's also appropriate for disciplined, long-term investing because of its minimum monitoring mistakes and SIP-friendly style.

2. Motilal Oswal Nifty India Defence ETF

Nifty India Defence ETF affords liquid, market-traded exposure to the Nifty India Defence Index and is a passive exchange-traded fund. It is adaptable for energetic traders through combining the tradability of an ETF with the diversification of an index fund. In line with current information, this ETF has produced incredible returns of 32–41% over six-month durations, demonstrating the momentum of the enterprise. With lower expenditure ratios than many actively controlled schemes, it is also economical. Traders can easily monitor performance because of the fund's real-time pricing and transparency of holdings. This ETF is appropriate for traders looking for thematic defence publicity who are at ease with short-term fee fluctuations and market volatility.

3. Aditya Birla Sun Life Nifty India Defence Index Fund

Aditya Birla Solar Life is any other passive index product that tracks the Nifty India Defence Index and provides investors with various publicity to main defence stocks is the Nifty India Defence Index product. As of December 2025, it had historically produced 1-year absolute returns of about 19.26%, maintaining aggressive performance in the industry. Moreover, it has proven returns of 30% over medium-term intervals, indicating a strong thematic increase. For investors looking for passive exposure without the hassles of active control, this fund is low-priced. It enables traders to profit from India's expanding defence zone while retaining a long-term investing outlook. It's a suitable choice for each lump-sum and SIP investments due to its structure.

4. HDFC Defence Fund

Based on inner studies and strategic prospects, the HDFC Defence Fund is an active/themed mutual fund that makes investments in carefully chosen defence and defence-related shares. In contrast to index-based total schemes, this fund presents flexibility to profit from new trends within the defence industry. Though marginally less than highly focused ETFs, it has traditionally maintained a big investor hobby with appropriate AUM and regular returns. The fund aims for potentially better risk-adjusted returns and is meant for traders who are secure with energetic control and elevated volatility. When opportunities present themselves, it could rotate into potential sub-sectors because of its dynamic inventory selection approach. Those looking for thematic improvement capacity with a hands-on investment technique can choose the HDFC Defence Fund.

Comparative Snapshot — Fund Metrics (2025 Benchmarks)

(Note: Returns mentioned are based on the latest publicly available data as of late 2025 and are intended for informational context only. Past performance does not guarantee future results.)

How to Evaluate Defence Sector Funds for 2026

When choosing among defence sector mutual funds, consider the following key evaluation criteria:

Final Take

For investors who have faith in India's strategic manufacturing potential and long-term capital appreciation, mutual funds that focus on the country's defence enterprise offer a compelling option. It is crucial to match portfolio alternatives with investing goals, risk tolerance, and time horizon, even though current historical returns display accurate performance in unique instances. With historic overall performance records behind them, Motilal Oswal's defence index options, mainly those that track the Nifty India Defence TRI, are well-placed to offer various publicity to the sector's growth story. For long-term investors looking for thematic variety, they remain appealing choices.

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