HDFC Defence Fund: A Comprehensive Overview
The HDFC Defence Mutual Fund is an equity mutual fund launched on June 2, 2023. It focuses primarily on companies operating within the defense and allied sectors, making it an attractive option for investors interested in capitalizing on India’s growing defense capabilities. The fund seeks to provide long-term capital appreciation by investing in high-quality stocks within this sector. Let’s delve deeper into the specifics of the fund.
1. Investment Objective
The fund aims to generate long-term capital appreciation by investing predominantly in equity and equity-related securities of companies in the defense and allied sectors. The companies targeted typically benefit from government contracts, policy support, and increased defense spending, both domestically and internationally
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2. Key Features
- Fund Type: Open-ended equity scheme focusing on the defense sector.
- Investment Structure: Investments in defense and related sectors such as aerospace, security, and industrial manufacturing.
- Risk Level: High, reflecting the volatility of sectoral funds and the nature of equity markets.
- Minimum Investment: ₹100 for SIP (Systematic Investment Plan) and lump sum investments
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- Exit Load: 1% for redemption within a year, encouraging long-term investment.
- Expense Ratio: 0.72% as of August 2024
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3. Performance
As of September 2024, the fund has garnered an impressive 79.69% return since its inception in June 2023, a figure that demonstrates its potential for rapid growth. The net asset value (NAV) is ₹22.3550 as of October 16, 2024
. Given the fund’s short existence, its returns are yet to stabilize over the long term, but early performance has been highly promising.
The fund is benchmarked against the Nifty India Defence TRI Index, ensuring that the companies selected align with market performance and sector trends
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4. Portfolio Composition
The HDFC Defence Fund’s portfolio is primarily focused on large defense contractors and aerospace companies. The top holdings as of September 2024 include:
- Bharat Electronics Ltd.: 19.50%
- Hindustan Aeronautics Ltd.: 17.87%
- Solar Industries India Ltd.: 9.26%
- Cyient DLM Ltd.: 8.89%
- BEML Ltd.: 7.54%
.
These holdings reflect a diverse yet concentrated exposure to key defense sector players that are critical to India’s defense strategy.
5. Who Should Invest?
This fund is suitable for investors who:
- Are comfortable with high-risk investments due to the concentrated sectoral exposure.
- Have a long-term investment horizon and are looking to capitalize on India’s growing defense industry.
- Want to diversify their equity portfolio with exposure to a niche but potentially high-growth sector.
6. Growth Drivers for the Defence Sector
India’s defense sector is on a growth trajectory, driven by increased government spending, indigenization policies (Make in India), and geopolitical factors. The Atmanirbhar Bharat initiative has also focused on reducing defense imports, thus creating opportunities for domestic companies to expand. As a result, the demand for defense products and services is expected to rise significantly, benefiting companies in this space
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7. Taxation and Exit Load
Investments in the HDFC Defence Fund are subject to short-term capital gains tax of 20% if redeemed within a year and 12.5% for long-term gains above ₹1.25 lakh. This makes it essential for investors to hold the fund for over a year to optimize returns after taxes
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8. Conclusion
The HDFC Defence Fund stands out for its focus on a niche but expanding sector in India. With strong early returns, a diverse portfolio of defense companies, and the support of favorable government policies, the fund is a promising option for investors who can tolerate high risks for the potential of long-term gains. However, as with any sectoral fund, it is vital for investors to align their risk tolerance and investment horizon before committing to this fund.
Investors are encouraged to consult with financial advisors to ensure the fund matches their risk appetite and investment goals.