The past five years in the Indian defence sector were defined by a massive re-rating i.e. the Time span in which the market realized these companies were serious wealth machines. Since 2021, valuations have exploded from a modest 10 P/E to nearly 40 P/E, with early believers pocketing gains of 200% to 600%.
As of February 2026, the valuation jump is in the rearview mirror, but the execution phase is just beginning. We are no longer betting on potential; we are tracking ₹1.3 lakh crore order books moving from spreadsheets to factory floors. This is the tactical map for investors ready to capitalize on the delivery cycle of India's military-industrial rise.
In this blog, we’ll simplify everything for you: what defence mutual funds are, why they matter now more than ever, which ones are performing well, and how you can get started step-by-step.
Below is a list of the best defence mutual funds in India for 2025, based on their Assets Under Management (AUM), Expense Ratio(Fee Taken from Returns by Fund manager) and returns. These funds are gaining popularity due to their focus on India's defence and aerospace sectors.
These funds focus on India’s fast-growing defence sector, investing in companies like Hindustan Aeronautics, Bharat Electronics, and other top defence manufacturers.
These funds focus on companies involved in the defence and aerospace sectors, giving investors a chance to benefit from the country's growing military and tech advancements. Below is an overview of some of the top defence mutual funds in India you should know about.
As the first-mover and most popular thematic play in India's military-industrial rise, the HDFC Defence Fund is built for long-term capital growth. Its portfolio is strategically weighted toward high-execution companies in aerospace, weapon manufacturing, and next-gen communication systems.
Key Details (Updated Feb 2026):
This passively managed fund is designed to mirror the performance of the Nifty India Defence Index, providing direct exposure to the heavyweights of India’s military-industrial complex. It is a preferred choice for investors looking for lower costs combined with strong, index-beating momentum.
Key Details (Updated Feb 2026):
This fund tracks the Nifty India Defence Total Return Index, providing investors with exposure to the top defense-related companies in India. As a relatively newer entry launched in August 2024, it has seen steady growth in popularity and AUM, offering a passive route to capture the sector's delivery phase.
Key Details (Updated Feb 2026):
This fund-of-fund (FoF) invests directly in the Groww Nifty India Defence ETF, providing a bridge for investors who prefer the mutual fund route while seeking the targeted exposure of an ETF. It is a highly efficient vehicle for capturing the broader defensive industrial base without requiring a demat account for the underlying ETF transactions.
Key Details (Updated Feb 2026):
The Indian government set aside a massive ₹7.85 lakh crore just for defence. The Indian Government made a rule that 75% of that money has to be spent on Indian companies. It’s like a guaranteed hometown advantage. The Make in India, think of it like this: for the last few years, our defence companies have been filling up their "order books" (basically a giant to-do list). Now, they’re finally clearing that list and getting paid for it.
In 2026, India’s defence sector has shifted from potential to a massive Execution Supercycle. With a record ₹7.85 lakh crore budget and 75% of procurement strictly reserved for local firms, domestic companies are finally clearing a ₹1.2 trillion backlog. Instead of picking one winner, Defence Mutual Funds let you own the entire chain: from Tejas jets to AI-driven cybersecurity. As India targets ₹50,000 crore in exports by 2029, these firms are no longer just protected by our borders; they are being paid by the world, offering a unique "security moat" that stays resilient even when the broader market gets shaky. Instead of trying to guess which single company will do best, Defence Mutual Funds let you own a piece of everything i.e. from the jets in the sky to the cybersecurity keeping us safe.
Also Read: 10 Best Defence Stocks in India 2026
Picking the right defence mutual fund doesn't have to be complicated—you just need to match the fund with your goals and comfort level.
Here’s how to do it:
Choosing the best defence fund isn’t about finding the one with the highest return—it’s about finding the one that fits your journey.
Many new investors ask: “Should I buy individual defence stocks or go for defence mutual funds?” The answer depends on your experience and comfort level with the stock market.
If you have the time and knowledge to track companies like HAL, BEL, or Bharat Dynamics, investing in defence stocks might give you higher control and potential gains. But remember—it also comes with higher risk and the need to monitor the market regularly.
On the other hand, defence mutual funds offer a more balanced approach. You get diversification, expert fund management, and exposure to a basket of defence-related stocks without picking them yourself.
The defence space in India and globally is changing fast, and these trends are pushing mutual fund investors to pay close attention.
The sector isn't just about war and weapons anymore—it's about technology, innovation, and national strength, making it a powerful investment theme for the future.
Investing in the best defence mutual fund is now easier than ever with multiple online platforms available. Whether you’re starting a SIP or going for a lump sum, choosing the right platform ensures a smooth experience.
Lakshmishree – A fast-growing, investor-friendly stock broker with direct mutual fund access.
How to Invest in Defence Mutual Funds with Lakshmishree:
With Lakshmishree, you're not just investing—you’re growing with expert support by your side.
Also Read: 10 Best Defence Stocks in India 2025
In 2026, India’s defence sector has moved from planning to production, entering a high-octane Execution cycle. With a historic ₹7.85 lakh crore budget and a strict 75% domestic procurement mandate, local firms are converting massive order backlogs into realized revenue.
Investing in 2026 isn't just about a trend; it's about backing the industrial backbone of a Viksit Bharat. With Lakshmishree’s Shree Varahi terminal, you can align your portfolio with this national transformation in just a few clicks.
Yes, there are several mutual funds in India that specifically invest in the defence sector. These funds are called defence mutual funds or defence sector mutual funds. They focus on companies involved in aerospace, military equipment, defence manufacturing, and related technologies.
Some of the top defence mutual funds in 2026, based on AUM and recent performance, are HDFC Defence Fund, Motilal Oswal Nifty Defence Index Fund, and Aditya Birla Sun Life Nifty Defence Index Fund. These funds offer exposure to India’s leading defence companies and have shown strong returns in recent months.
Defence sector mutual funds are considered high-risk, high-reward investments. Since they focus on a specific theme, they are more volatile compared to diversified mutual funds. However, for long-term investors with a higher risk appetite, these funds can offer strong growth potential, especially with India’s increasing defence spending.
Yes, you can easily start a SIP (Systematic Investment Plan) in HDFC Defence Fund. It allows you to invest a fixed amount every month, making it suitable for investors who want to enter the defence sector gradually. SIPs also help manage market volatility and average your investment cost over time.
HDFC Defence Fund is one of the leading mutual funds focused on the defence sector in India. It has shown solid returns since its launch in June 2023 and has a large AUM, reflecting investor trust. Managed by experienced professionals, it’s a strong option for those looking to invest in the defence and allied industries.
Aditya Birla Sun Life Nifty India Defence Index Fund is a relatively new fund but has performed well in its initial months. It tracks the Nifty India Defence Index and offers low-cost exposure to top defence companies. It’s a good choice for investors looking for passive investing with defence sector exposure.
Since these are equity-oriented funds, they follow standard equity taxation:
Short-Term (Held <12 months): Gains are taxed at 20%.
Long-Term (Held >12 months): Gains over ₹1.25 Lakh are taxed at 12.5%.
It depends on your goal. Active funds (like HDFC) allow the manager to handpick specific winners, which is great if you want to beat the market by spotting the next mid-cap multi-bagger. Index funds (like Motilal Oswal) simply mirror the top defence stocks, offering a cheaper, more transparent way to capture the overall sector's 52% annual growth.
Disclaimer: This article is intended for educational purposes only. Please note that the data related to the mentioned companies may change over time. The securities referenced are provided as examples and should not be considered as recommendations.
