Published Jun 29, 2026 4 Min Read

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Introduction

Defence Sector Mutual Funds are sectoral equity mutual funds that invest mainly in companies connected to the defence industry. They offer focused exposure to one sector and may benefit when the defence sector performs well, but they also carry higher risk because of limited diversification.

  • These funds primarily invest in companies operating in the defence and allied sectors. 
  • Being sectoral funds, they usually carry a High or Very High risk level. Always check the SEBI-mandated riskometer. 
  • You can invest through SIP or lumpsum, depending on the scheme. 
  • SIP investments start from Rs. 100 per month on the Bajaj Broking website for eligible schemes. 
  • Investors can choose from 4,000+ mutual fund schemes across equity, debt, hybrid, ELSS and thematic categories. 
  • KYC is mandatory before investing, as required by SEBI. 

Start your mutual fund investment journey on the Bajaj Broking website by completing your KYC, comparing available schemes, and investing through SIP or lumpsum.

What are Defence Sector Mutual Funds?

Defence Sector Mutual Funds are sectoral equity mutual funds that mainly invest in companies involved in defence manufacturing, aerospace, defence technology and related industries.

Unlike diversified equity funds, these schemes concentrate their investments in a single sector. Because of this, their performance depends largely on how the defence industry performs.

When you invest, you receive mutual fund units based on the applicable Net Asset Value (NAV). NAV is calculated once every trading day after the market closes.

These funds may suit investors who want focused exposure to India's defence sector and understand the risks associated with sector-specific investing.

How do Defence Sector Mutual Funds work?

Defence Sector Mutual Funds invest primarily in companies that operate in the defence ecosystem. Professional fund managers at the respective AMC decide which companies to include in the portfolio based on the scheme's investment objective.

The fund manager regularly reviews the portfolio and may adjust holdings based on market conditions, company performance and investment opportunities.

StepWhat happens
Fund selectionThe AMC creates a sectoral mutual fund focused on defence-related companies.
Portfolio constructionThe fund manager selects eligible companies based on the scheme objective.
InvestmentInvestors receive mutual fund units at the applicable NAV.
Portfolio reviewHoldings are reviewed and adjusted when required.
NAV calculationNAV is calculated once every trading day after market close.

As these funds are concentrated in one sector, they may experience higher volatility than diversified equity mutual funds.

Top Defence Sector Mutual Funds in India (2026)

The number of dedicated defence sector mutual funds in India is still limited. Most available schemes are either actively managed thematic funds or passive index funds tracking the Nifty India Defence Index.

Mutual fund schemeFund typeApprox. AUM*Expense ratio*Risk level
HDFC Defence FundActive sectoral equity fundRs. 9,724 crore0.83%Very High
Motilal Oswal Nifty India Defence Index FundPassive index fundRs. 4,856 crore0.47% (Direct Plan)Very High
Aditya Birla Sun Life Nifty India Defence Index FundPassive index fundRs. 1,166 crore0.28% (Direct Plan)Very High
Axis Nifty India Defence Index FundPassive index fundRs. 254 crore0.98% (Direct Plan)Very High

Why do investors choose Defence Sector Mutual Funds?

Defence Sector Mutual Funds provide focused exposure to companies operating in a strategic sector of the economy. They may appeal to investors who believe the defence industry has long-term growth potential.

BenefitWhy it matters
Sector-focused exposureInvests mainly in defence-related companies.
Professional fund managementPortfolio decisions are taken by experienced fund managers at the respective AMC.
Long-term growth potentialMay benefit if the defence sector expands over time.
SIP and lumpsum investmentYou can invest through either mode for eligible schemes.
Easy accessibilitySIP investments start from Rs. 100 per month on the Bajaj Broking website.

Before investing, always review the SEBI-mandated riskometer because sectoral mutual funds generally carry higher investment risk.

What are the risks of investing in Defence Sector Mutual Funds?

Defence Sector Mutual Funds concentrate their investments in a single sector. While this can provide strong returns when the defence industry performs well, it also increases the risk if the sector underperforms.

Before investing, always review the SEBI-mandated riskometer, which classifies schemes as Low, Low to Moderate, Moderate, Moderately High, High or Very High.

RiskWhat it means
Sector concentration riskThe fund invests mainly in defence-related companies, so performance depends heavily on one sector.
Market riskStock prices can rise or fall because of market conditions.
Policy riskChanges in government policies or defence spending may affect company performance.
VolatilitySectoral funds generally experience larger price movements than diversified equity funds.
Liquidity riskSome defence-related stocks may have lower trading volumes during certain market conditions.
No guaranteed returnsMutual fund returns are market-linked and depend on market performance.

Although these funds may benefit from long-term sector growth, they are generally more volatile than diversified equity mutual funds. You should invest only if the scheme matches your financial goals and risk appetite.

How are Defence Sector Mutual Funds taxed in India?

The taxation of Defence Sector Mutual Funds depends on the applicable tax rules for equity-oriented mutual funds at the time of redemption.

Since tax laws may change over time, you should always refer to the latest income tax provisions or consult a qualified tax adviser before making investment decisions.

Tax factorDetails
Tax treatmentDepends on the applicable tax rules for equity-oriented mutual funds.
Holding periodTax implications may vary based on the period for which you hold the investment.
Dividend taxationTax treatment depends on the prevailing income tax rules.
Tax law changesFuture amendments may change the applicable tax treatment.

Before investing, understand both the potential returns and the tax implications of your investment.

Conclusion

Defence Sector Mutual Funds provide focused exposure to companies operating in India's defence and allied industries. These funds can benefit from growth in the sector, but because they invest in a single industry, they generally carry higher risk than diversified equity mutual funds.

Before investing, review the scheme's investment objective, portfolio, and the SEBI-mandated riskometer. Ensure the fund aligns with your financial goals, investment horizon and risk tolerance. Remember that mutual fund returns are market-linked and cannot be guaranteed.

On the Bajaj Broking website, you can explore 4,000+ mutual fund schemes across equity, debt, hybrid, ELSS and thematic categories. After completing your mandatory KYC, you can invest through a SIP from Rs. 100 per month or choose a lumpsum investment for eligible schemes.

Frequently asked questions

Are Defence Sector Mutual Funds risky?

Yes. Defence Sector Mutual Funds are generally considered high-risk investments because they focus mainly on one sector. Their performance depends on the growth of the defence industry, government policies and overall market conditions. As sectoral equity funds, they may experience greater price fluctuations than diversified equity funds. Before investing, always review the SEBI-mandated riskometer. On the Bajaj Broking website, you can compare different mutual fund categories to choose one that matches your financial goals and risk appetite.


What is the tax rate on defence mutual fund gains in India?

The tax on gains from Defence Sector Mutual Funds depends on the applicable tax rules for equity-oriented mutual funds at the time of redemption. Tax treatment may vary based on your holding period and the prevailing income tax laws. Since tax regulations can change, you should check the latest rules or consult a qualified tax adviser before redeeming your investment.


Can I start a SIP in Defence Sector Mutual Funds?

Yes. Most Defence Sector Mutual Funds allow you to invest through a Systematic Investment Plan (SIP) as well as a lumpsum investment, depending on the scheme. A SIP lets you invest a fixed amount at regular intervals into your chosen mutual fund scheme. On the Bajaj Broking website, SIP investments start from Rs. 100 per month for eligible schemes after completing your mandatory KYC.


Which Defence Sector Mutual Fund has the highest AUM in India?

As of 2026, HDFC Defence Fund has the highest Assets Under Management (AUM) among dedicated Defence Sector Mutual Funds in India, with an AUM of approximately Rs. 9,724 crore. It is an actively managed sectoral equity fund that invests primarily in defence and allied companies. 

While a higher AUM may indicate strong investor participation and liquidity, it should not be the only factor when selecting a mutual fund. You should also compare the fund's investment objective, expense ratio, portfolio composition, risk level shown on the SEBI-mandated riskometer, and how well it aligns with your financial goals. On the Bajaj Broking website, you can compare Defence Sector Mutual Funds alongside 4,000+ mutual fund schemes across equity, debt, hybrid, ELSS and thematic categories before investing.

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