Best Defence Sector Funds in India Amid Rising Global Tensions

Rising global tensions and geopolitical uncertainty have shifted investor focus toward sectors that offer resilience and growth potential and the defence sector stands out. Countries around the world are increasing military spending as a percentage of GDP, and India is no exception. With the government prioritizing indigenous manufacturing, massive defence projects, and self-reliance initiatives like Atmanirbhar Bharat, the sector is witnessing unprecedented growth.

For investors, defence sector mutual funds and defence sector ETFs provide an opportunity to participate in this powerful long-term trend. However, with market volatility, shifting policy changes, and an uncertain global environment, choosing the best defence sector funds in India requires both insight and strategy.

Best Defence Sector Funds

1. HDFC Defence fund

The HDFC Defence Fund has delivered an impressive annual growth of over 45% in early 2025, making it one of the top-performing defence sector mutual funds in India. This exceptional performance reflects the fund’s strategic positioning within the nation’s rapidly expanding defense manufacturing ecosystem and rising capital expenditure by the government. The portfolio is diversified across high-potential defence sector stocks engaged in aerospace, avionics, radar systems, and missile technologies, closely aligned with India’s Atmanirbhar Bharat and indigenous defence projects.

Key holdings such as Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL), and Mazagon Dock Shipbuilders continue to post strong revenue visibility, backed by robust order inflows and export opportunities. From a technical perspective, the fund’s performance is supported by solid momentum across the top defense stocks, aided by steady policy reforms and increasing military spending as a percentage of GDP. With expert fund management , disciplined asset allocation, and a focus on long-term structural growth, the HDFC Defence Fund stands out as a technically sound and strategically positioned investment for 2025 and beyond.

2. Aditya Birla SL Nifty India Defence Index Fund

The Aditya Birla SL Nifty India Defence Index Fund has recorded an impressive early 2025 growth rate of nearly 40%, positioning it among the best-performing defence sector mutual funds in India. This passively managed fund tracks the Nifty India Defence Index, offering diversified exposure to high-quality defence stocks that form the backbone of India’s strategic modernization initiatives.

Its portfolio includes leading defense industry stocks such as Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL), Bharat Dynamics Limited (BDL), and Cochin Shipyard, all benefiting from record-high defense orders and ongoing defence projects.

From a technical standpoint, the fund’s structure allows investors to capitalize on momentum across the entire defense value chain including aerospace, missile systems, and naval engineering with low tracking error and minimal active risk.

Supported by strong policy reforms, rising domestic production, and increasing military spending as a percentage of GDP, the Aditya Birla SL Nifty India Defence Index Fund offers a data-driven, cost-efficient way to capture the long-term growth potential of India’s expanding defense economy.

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3. Motilal Oswal Nifty India Defence Index Fund

The Motilal Oswal Nifty India Defence Index Fund has emerged as a top contender among India’s defence sector mutual funds, delivering an impressive early 2025 growth rate of around 38%. This fund mirrors the Nifty India Defence Index, providing investors diversified exposure to India’s top defense stocks driving the nation’s self-reliance mission.

Its portfolio includes major players like Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL), and Mazagon Dock Shipbuilders, which have all benefited from strong order inflows and record-high allocations in the defence budget.

Technically, the fund’s passive strategy ensures efficient market replication and low-cost participation in India’s accelerating defense manufacturing cycle. The combination of rising capital expenditure, indigenous defence projects, and export growth has created a favorable environment for sustained sectoral performance.

For investors seeking long-term exposure to the defense value chain with disciplined risk control, this fund represents a strategic and growth-oriented investment in 2025.

4. Groww Nifty India Defence ETF FoF Fund

The Groww Nifty India Defence ETF FoF Fund has shown remarkable performance with an early 2025 growth rate of nearly 37%, positioning it among the best passive defence sector mutual funds in India. This Fund of Fund (FoF) invests in the Nifty India Defence ETF, giving investors cost-efficient access to top-performing defense industry stocks driving India’s self-reliance and defense modernization goals.

Its portfolio includes key players like Bharat Electronics Limited (BEL), Hindustan Aeronautics Limited (HAL), and Bharat Dynamics Limited (BDL) all supported by expanding defence projects and strong government policy.

From a technical standpoint, the fund’s diversified exposure helps mitigate risks even during an economic downturn, as defense spending tends to remain stable or even rise in times of geopolitical tension. Combining liquidity, low tracking error, and robust sectoral momentum, the Groww Nifty India Defence ETF FoF Fund offers an ideal entry point for investors seeking steady, long-term exposure to India’s booming defense ecosystem.

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Things to Look Out for While Investing in Defence Sector Funds

Investing in defence sector mutual funds in India can be highly rewarding, but it requires a disciplined and informed approach. The defense industry is heavily influenced by government policies, procurement cycles, and geopolitical dynamics factors that can significantly impact returns.

Therefore, before investing, it’s essential to assess the fund’s portfolio composition, ensuring it holds a diversified mix of defence stocks across segments like aerospace, shipbuilding, and defense electronics. Funds with broader exposure to both PSU and private defense industry stocks tend to offer more stability and consistent growth potential.

Investors should also evaluate the fund management strategy, historical performance, and how the fund aligns with India’s long-term defence modernization goals. Monitoring the government’s defence budget allocations, new defence projects, and export policies can provide valuable insights into future growth trajectories. Additionally, investors must factor in the cyclical nature of the defense sector where order inflows may be lumpy but long-term revenue visibility remains strong.

ensure the fund’s risk profile matches your investment horizon and volatility tolerance. While defence sector mutual funds in India can deliver superior returns, they are best suited for investors with patience, a strategic outlook, and confidence in India’s expanding defense manufacturing ecosystem.

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Conclusion

The defense sector has emerged as one of the most resilient and opportunity-rich spaces for investors in 2025. India’s increasing defence budget, strong policy push for indigenization, and strategic defence projects under Atmanirbhar Bharat have accelerated the growth of the nation’s defense ecosystem.

Against this backdrop, defence sector mutual funds in India such as the HDFC Defence Fund, Aditya Birla SL Nifty India Defence Index Fund, Motilal Oswal Nifty India Defence Index Fund, and Groww Nifty India Defence ETF FoF Fund have proven to be standout performers, offering exposure to high-potential defence stocks and defense industry stocks leading India’s modernization drive.

Frequently Asked Questions

1. What are defence sector mutual funds and how do they work?

Defence sector mutual funds invest mainly in companies involved in defence manufacturing, aerospace, technology, and government contracts. They aim to benefit from rising defence spending, modernisation, and long-term policy support. As sector-focused funds, they offer high growth potential but carry concentration and regulatory risks.

2. Why are defence funds gaining popularity in India now?

Defence funds are gaining traction in India due to the government’s strong push for Make-in-India, rising defence budgets, and rapid modernisation of military capabilities. Growing geopolitical tensions and increasing domestic production have boosted the sector’s long-term growth outlook. As order books expand and new defence technologies emerge, investors see the sector as a high-potential opportunity.

3. How do global tensions impact defence sector fund performance?

Global tensions often boost defence sector fund performance because countries increase military spending and accelerate defence procurement. Higher demand for equipment, technology, and innovation strengthens order books of defence companies. However, prolonged conflicts can also increase volatility and geopolitical risk for investors.

4. Are defence sector funds good for long-term investment?

Defence sector funds can be good long-term investments if defence spending, modernisation, and technological upgrades continue to grow. Their potential lies in steady government demand and strong order pipelines. However, they remain high-risk due to regulatory dependence and sector concentration, so they suit investors with a higher risk appetite.

5. What should investors check before investing in defence mutual funds?

Investors should review the fund’s portfolio, focusing on diversification across defence manufacturers, technology providers, and related industries. They must check the fund manager’s track record, expense ratio, and consistency of returns. Understanding policy risks, defence budgets, and overall market cycles is essential before committing capital.