Top Defence Mutual Funds in India 2024 | Invest 5K & Get 75Lakh

Introduction 

Defense is vital to a country's ability to advance and ensure the security of its citizens. The geopolitical danger has increased in recent years, especially with Russia's invasion of Ukraine, tense ties between the United States and China, North and South Korea, India and China, and the crisis that devastated Pakistan.

According to the worldwide BlackRock Geopolitical Risk Indicator (BGRI), possible large cyberattacks, terror attacks, tensions in the Gulf area, strategic competition between the United States and China, and the confrontation between Russia and NATO are among the medium-to-high threats. These are included among the top 10 geopolitical risks for 2023, according to even the global rating agency S&P Global.

Under the leadership of Prime Minister Modi, the National Democratic Alliance (NDA) has undertaken significant defense industry expenditures in recent years, keeping a close eye on the changing geopolitical landscape.

India is ranked third in terms of defense spending, behind the United States and China, according to the Stockholm International Peace Research Institute (SIPRI). The government included Rs 5.95 trillion in the Union Budget 2023, a 13% increase over the previous Union budget. The modernization of India's defense capabilities is clearly in the spotlight.

According to a press release from the Ministry of Defence, in the most recent fiscal year, 2022–2023—India's defense production or turnover exceeded Rs 1 trillion for the first time ever, reaching Rs 1.06 trillion—a growth of more than 12% over FY 2021–2022. Furthermore, this number is anticipated to increase if private companies working in the defense sector are included. According to the Ministry of Defence, the government has raised the number of defence licences granted to firms by over 200% in the previous seven to eight years, with a focus on 'Make in India' and Aatmanirbharta (self-reliance) in defense. The government will continue to encourage efforts to establish India as a center for defense industry, as Prime Minister Narendra Modi has frequently said.

The Nifty India Defence Index - TRI, which monitors the performance of listed defense companies, has produced a compounded annualized return of 30.46% (as of August 16, 2023)—outperforming the Nifty 50 -TRI and generating wealth for investors—thanks to the significant advancements made in India's defense sector over the past five years. Businesses that have benefited from India's booming defense industry, particularly those involved in the missile programme, aerospace industry, and naval/marine capabilities, have done very well.

 

 

Top 10 Defence Companies that all Equity Mutual Funds have Exposure

Company Name	Mutual Fund Holding Mkt Value (Rs in Cr.) as of 31st July 2023	Price as of 16th Aug 2023	Price as of 16th Aug 2022	% Change in Price since 16th Aug 2022
Astra Microwave Products Ltd	235.10	358.70	275.70	0.30
Bharat Dynamics Ltd	1360.29	1141.95	841.82	0.36
Bharat Electronics Ltd	11024.23	131.30	97.93	0.34
Bharat Forge Ltd	7561.79	960.15	779	0.23
Cochin Shipyard Ltf	2.92	807.85	336.05	1.40
Hindustan Aeronautics Ltd	6630.15	3900.15	2297.30	0.70
Mazagon Dock Shipbuilders Ltd	38.56	1935.70	320.15	5.05
MTAR Technologies Ltd	1394.93	2227.55	1600.25	0.39
Premier Explosives Ltd	3.87	1058.25	345.55	2.06
Solar Industries India Ltd	3508.62	4264.55	3302.95	0.29

 

Table 1 illustrates how numerous defense-related businesses, including Mazagaon Dock Shipbuilders, Cochin Shipyard, and Premier Explosives, have produced impressive profits since August of last year. Numerous mutual fund schemes have benefited from the surge in defense equities by having a reasonable amount of exposure to these stocks.

As of July 31, 2023, at least one scheme has invested in at least one defense firm out of the 267 diversified equity mutual fund schemes that were taken into consideration as well as one scheme specifically for the defense industry. Ninety-five mutual fund schemes have an exposure of between 1% and 2%, 48 have an exposure of around 3-4%, 17 have an exposure of 5% or more, and 23 have an exposure of less than One percent goes toward defense stocks.

 

Top 5 Fund Houses with High Exposures to Defence Stocks in their Equity Schemes

Fund House Name	Exposure as a % of Equity AUM
Kotak Mutual Fund	4.67
HDFC Mutual Fund	3.76
Invesco Mutual Fund	3.41
DSP Mutual Fund	3.33
ITI Mutual Fund	2.89

 

The Indian defense industry is notably exposed at the fund house level by Kotak Mutual Fund, HDFC Mutual Fund, Invesco Mutual Fund, DSP Mutual Fund, and ITI Mutual Fund.

In relation to the equity mutual fund scheme, the following five have a significant exposure to defense stocks:...

 

 

 

Top 5 Diversified Equity Funds with High Exposure to Defence Stocks

Scheme Name	Exposure as a % of Portfolio
HDFC Defence Fund	61.22
360 One Quant Fund	9.73
ITI Mid Cap Fund	7.8
Edelweiss Mid Cap Fund	7.25
Kotak Emerging Equity Fund	7.15
Tata Dividend Yield Fund	6.86

There is now a 61.22% exposure to defense equities in the recently created sector-specific plan, HDFC Defence Fund. Additionally, it makes investments in associated businesses engaged in defense-related endeavors.

1. HDFC DEFENCE FUND

Under normal conditions, the June 2023 launch of the HDFC Defence Fund is mandated to allocate 80% to 100% of its assets to equities and equity-related instruments of Defense & allied sector companies. The fund now has a concentrated portfolio of eighteen equities, of which fifty-two percent are large-cap stocks and the remaining fifty-seven percent are small- and mid-cap stocks.

 

Top Defence Stock Holdings of HDFC Defence Fund

Stock	% of Assets
Hindustan Aeronautics Ltd	22.41
Bharat Electronics Ltd	17.09
MTAR Technologies Ltd	8.48
Bharat Dynamics Ltd	5.92
Solar Industries India Ltd	5.83
Bharat Forge Ltd	1.16
Premier Explosives Ltd	0.32

As of July 31, 2023, the top 5 defense stocks are Hindustan Aeronautics, Bharat Electronics, MTAR Technologies, Bharat Dynamics, and Solar Industries India. Then, among the allies are companies that work in capital goods and engineering and that are also involved in the defense industry, including BEML, Bharat Forge, L&T, and so on. Are you curious about the other stocks held by the HDFC Defence Fund? Click this link to view its factsheet.

Notably, HDFC Defence Fund has limited new investments after realizing that its investing universe is small (total of 21 stocks) and after getting positive feedback on its NFO. In addition to protecting the interests of present investors, this is done to maintain the overall investment plan.

For the Last 1 Years, HDFC Defence Funds Has given more than 70%

Read Complete Analysis of HDFC Defence Fund

 

2- 360 ONE QUANT FUND

The 360 ONE Quant Fund, which was introduced in November 2021 during the COVID-19 pandemic, is a theme fund that uses a quantitative technique to develop its portfolio. It is part of the 360 ONE Mutual Fund stable, which was formerly known as IIFL Mutual Fund. According to its portfolio as of July 2023, the fund has 9.73% exposure to important defense firms (out of 34 stocks in total).

 

Top Defence Stock Holdings of 360 ONE Quant Fund

Stock	% of Assets
Hindustan Aeronautics Ltd	3.49
Bharat Electronics Ltd	3.25
Bharat Forge Ltd	2.99

The portfolio now consists of 34.78% of the top 10 equities, with a significant portion consisting of defense firms like Bharat Electronics and Hindustan Aeronautics. As of July 2023, 80.51% of the 360 ONE Quant Fund's total portfolio is made up mostly of largecap stocks, with the remaining 19.49% being midcap stocks.

For the Last 1 Years, 360 One Quant Funds Has given more than 60%

 

 

3- ITI MID CAP FUND

The ITI Mid Cap Fund was established in March 2021 during the COVID-19 pandemic. As part of its investment mandate in midcap firms, the fund has exposure to five defense stocks, which account for 7.80% of its equity portfolio.

 

Top Defence Stock Holdings of ITI MID CapFund

Stock	% of Assets
Solar Industries India Ltd	2.1
Bharat Electronics Ltd	1.58
Bharat Forge Ltd	1.4
Hindustan Aeronautics Ltd	1.4
Bharat Dynamics Ltd	1.32

The best defense holding in the ITI Midcap Fund is Solar Industries India, which is also among the scheme's top 10 stocks. As a whole, the fund's 73-stock portfolio is well-diversified and aligned with its midcap investment mandate. The plan chooses reputable companies by using a bottom-up method to stock selection

For the Last 1 Years, ITI Mid Cap Funds Has given more than 60%

4- EDELWEISS MID CAP FUND

Introduced more than ten years ago in January 2013, the fund was earlier known as Edelweiss Mid and Small Cap Fund. It was reclassified as a mid-cap mutual fund scheme following the mutual fund categorization and rationalization rules. Currently, the fund's goal is to produce long-term capital growth via a portfolio that primarily consists of investments in midcap firms' shares and equity-related instruments. Accordingly, the Edelweiss Mid Cap Fund invests 31.54% of its equity portfolio in largecap stocks, 6.26% in smallcap stocks, and 62.20% in midcap stocks.

 

Top Defence Stock Holdings of Edelweiss Mid Cap Fund

Stock	% of Assets
Bharat Electronics Ltd	2.3
Solar Industries India Ltd	2.19
Bharat Dynamics Ltd	1.83
Bharat Forge Ltd	0.94

The portfolio of the fund consists of 55 equities at the moment, with the top 10 holdings making up 34.16% of the total. None of the aforementioned defense stocks are among the fund's top ten holdings, though. To put it another way, the exposure to defense equities is minimal—7.25% of its overall asset base.

For the Last 1 Years, Edelweiss Mid cap Funds Has given more than 50%

 

 

 

5- KOTAK EMERGING EQUITY FUND

Initially introduced in March 2007 as a mid and small size fund, it was reclassified as a mid cap fund subsequent to SEBI's rationalization and recategorization guidelines. Currently, Kotak Emerging stock Fund invests primarily in midcap firms with the goal of producing long-term capital appreciation from a portfolio of stock and equity-related instruments. The fund adheres to its investing mandate and has 78 stocks that are well-diversified.

 

Top Defence Stock Holdings of Kotak Emerging Equity Fund:

Stock	% of Assets
Solar Industries India Ltd	2.46
Bharat Forge Ltd	2.39
Bharat Electronics Ltd	2.29

 

30.51% of the portfolio is made up of the top 10 equities, one of which is the defense company Solar Industries. Bharat Forge and Bharat Electronics are its other defense-related stocks. The overall exposure of the Kotak Emerging Equity Fund to defense stocks is 7.15%.

Overall, the Kotak Emerging Equity Fund has fulfilled its objective by maintaining a strong portfolio through a buy-and-hold strategy and bottom-up stock selection, rewarding investors with better risk-adjusted returns. Out of the mid-cap funds, it is one of the best performers.

For the Last 1 Years, Kotak Emerging Equity Funds Has given more than 40%

6- TATA DIVIDEND YIELD FUND

This fund was established in May 2021 amidst the COVID-19 epidemic. Its primary objective is to invest in dividend-paying corporations, but it also has exposure to several defense stocks that pay dividends, such Bharat Electronics and Hindustan Aeronautics. These two defense firms account for 6.86% of the portfolio overall. Bharat Electronics is among the fund's top ten holdings.

 

Tata Dividend Yield Fund

Stock	% of Assets
Bharat Electronics Ltd	5.22
Hindustan Aeronautics Ltd	1.64

The Tata Dividend Yield Fund's whole equity portfolio, which consists of 49 firms with a top-10 share of 38.60%, is currently well-diversified, with 70.73% of the portfolio consisting of largecap stocks, 26.26% consisting of midcap stocks, and 3.02% consisting of smallcap stocks. The fund has just around 4 percent of its total assets in cash and debt, making it nearly entirely invested.

 For the Last 1 Years, TATA Dividend Yeild Funds Has given more than 45%

 

 

The Prospects for India's Defense Industry

The Indian defense industry has been named the "sunrise sector of the future" by Mr. Rajnath Singh, the country's minister of defense. It is anticipated that the effort towards "Make in India" (indigenization) and "Aatmanirbharta" (self-reliance) in defense would be successful. A number of Indian defense industries have a robust and expanding order book. Additionally, many have a high book-to-bill ratio—the ratio of newly received orders to units billed.

Disclaimer: This Mutual Funds Analysis is only for informational purposes and should not be considered as investment advice. Always do your research and consult with a financial advisor.

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