Top Defence Mutual Funds to Invest in 2025
India’s economy in 2025 is reportedly doing well based on strong demand, big infrastructure projects, and emerging industries. Given the growth of over 6.5 percent per year, India is ranked among the most rapidly growing countries in the world. However, global challenges like high interest rates and ongoing conflicts are creating uncertainties. Although challenges exist, this resilience is noteworthy.
The growth is mainly led by the key industries such as defence, infrastructure, and energy. Of these, the defence sector has caught the eye this year because of rising geopolitical tensions and high spending on national security by many countries.
Why is the Defence Sector Important?
Conflicts in the Indo-Pacific region and Eastern Europe are pushing nations like India to strengthen their defence systems. The nations are spending more on advanced technologies, modern weaponry, and cybersecurity to keep themselves prepared for any challenge. However, this surge in spending raises questions about priorities; because nations must balance defence needs with social and economic development.
Under the Atmanirbhar Bharat plan, India is focusing on making its own defence equipment. The increase in the defence budget by the government has started showing results by increasing the size of local defence companies.
Nifty India Defence Index tracks companies engaged in the Defence and Aerospace sector, and this sector is showing excellent results of increasing importance for the industry. Here, it explains the significance defence companies hold under India’s economic as well as its security plans. Mutual funds associated with this type of sector find popularity as such funds provide an opportunity of investment in that industry, and it is burgeoning and stable also.
Best Defence Mutual Funds in 2025
1. Aditya Birla SL Nifty India Defence Index Fund
This fund was launched in August 2024, and the scheme is a mutual fund investment in the defence sector of India following in the Nifty India Defence Index. This scheme has a gross AUM of Rs.377.36 crore, which spread over 17 stocks, and most of the stocks are large and mid-cap companies.
It accommodates the key players including Bharat Electronics Ltd., which offers military electronics and Hindustan Aeronautics Ltd, which deals in aircraft. It is a perfect low-cost fund for those seeking long-term growth in the very high potential sector.
2. Motilal Oswal Nifty India Defence Index Fund
The new fund, launched in July 2024, tracks Nifty India Defence Index. With an AUM of Rs.2,321.31 crores, it invested in companies directly or indirectly involved in defence.
The fund invests in big companies like Bharat Electronics Ltd., Hindustan Aeronautics Ltd., and Bharat Dynamics Ltd. It also includes innovative companies like Zen Technologies Ltd., which works on simulation. This fund is a good choice for investors who want to spread their investments and focus on the defence sector.
3. HDFC Defence Fund
Unlike index funds, this is an actively managed fund, wherein the money invested is put in specific defence and aerospace companies. It has a size of Rs.4,647.38 crore and is invested in both large and small companies.
The fund seeks to achieve high growth opportunities in the area of defence manufacturing and related technologies. This is a fund that investors willing to accept higher risk can take up with an expectation of rewards.
4. HSBC Infrastructure Fund
While it is more an infra fund, this fund has seen the investments in Defence companies grow. It owns big stocks such as Bharat Electronics Ltd. and Larsen & Toubro Ltd., which reflects an interest of the fund in the defence and engineering space. This is a great fund for the people who want to be benefited with growth from two fronts: infrastructure as well as defence.
5. Kotak Flexicap Fund
This fund is diversified across company sizes and sectors, including defence. Its portfolio includes Bharat Electronics Ltd., Hindustan Aeronautics Ltd., and Larsen & Toubro Ltd.
Its flexibility allows this fund to balance investments in the defence sector with others that are fast growing, like technology and financial services, so it is an excellent choice for diversification.
India’s defence sector is expected to grow significantly, thanks to government initiatives and increased budgets. For FY25, the Ministry of Defence received Rs.6,21,940.85 crore (around USD 75 billion), the highest allocation among all ministries.
It also fosters innovation by encouraging initiatives like Innovations for Defence Excellence (iDEX), which is the promotion of start-ups engaged in research on new technologies for the defence industry. Projects for advanced aircraft, submarines, and missiles are currently underway and would reflect the intent of the country to modernize its defence capabilities.
Collaboration with the US, Russia, and Israel will also enhance the Indian defence sector with technology transfer and joint ventures.
As global tensions continue to rise, the defence sector of India promises to be of great importance for national security. For investors, the potential long-term growth comes in the form of mutual funds investing in the sector. Besides diversifying a portfolio, an investment in such funds will aid India’s defence push towards becoming self-reliant and leading the world as a major defence player.
