Best Defense Sector Mutual Funds in India for 2026

Summary 

Defense Sector Mutual Fund invests in companies across the defense, aerospace, and manufacturing sectors. In 2026, many Indian investors are moving towards these types of funds due to rising defense expenditure, exports, and a push for local production. They give exposure but are riskier than diversified funds.

Understanding Defense Sector Mutual Funds

Defense sector funds invest mainly in listed defense and aerospace businesses, as well as suppliers that provide components, technology, and services to them. The stock portfolio consists of industries such as engineering, electronics, shipyards, and defense PSUs.

Typical features of defense sector mutual funds:

• The portfolio is concentrated in a limited number of defense-linked companies.
• Sector weight is heavy in industrials and related segments.
• Returns depend on defense spending, export demand, and government policy.
• Risk is higher than that of broad, diversified funds because one sector dominates.

These funds are attracting attention in India due to rising defense budgets, Make in India policies, export orders, and a clear government focus on self-reliance. Investors who believe defense spending will remain strong for many years are looking at this theme.

Top Defense Sector Mutual Funds to Watch in 2026

In 2026, the options are limited but growing. Some options track a dedicated defense index, while others are actively managed or follow an ETF‑of‑funds structure. Funds that follow the index have the same weight as the benchmark. ETF and ETF‑FoF structures trade on the market or hold units of an underlying exchange‑traded fund.

Below are key details of leading defense mutual funds in India.

Note: Data as of 15/05/2026. Please verify current figures before investing.

Motilal Oswal Nifty India Defense Index Fund Direct Growth

Fund Objective and Strategy

• Seeks to provide returns that closely correspond to the performance of the Nifty India Defense Index, subject to tracking error.
• Invests mainly in defense and defense‑related companies that are part of this index.
• Follows a passive, index‑tracking approach rather than active stock selection.

Key Data

• Latest NAV (15 May 2026): ₹11.80.
• Minimum SIP amount: ₹500.
• Fund size (AUM): ₹4,690.22 crore.
• Expense ratio: 0.5%.
• Exit load: 1% if units are redeemed within 15 days.

Who May Consider This Fund

• Investors who want pure index‑based exposure to the defense theme.
• Those who are comfortable with a fully equity portfolio linked to defense orders and government spending.
• People who prefer a rules‑based mutual fund in the defense sector option, instead of active stock picking.

Aditya Birla Sun Life Nifty India Defense Index Fund Direct Growth

Fund Benchmark and Portfolio

• Tracks the same Nifty India Defense Index.
• Holds the same set of defense and defense‑related companies as the index, in similar weights.
• The portfolio is highly concentrated in industrial and related sectors.

Key Data

• Latest NAV (18 May 2026): ₹12.81.
• Minimum SIP amount: ₹500.
• Fund size (AUM): ₹847 crore.
• Expense ratio: 0.33%.
• Exit load: 0.05% if redeemed within 30 days.

Potential Benefits for Long-Term Investors

• Lower expense ratio compared with many actively managed thematic funds.
• Clear alignment with the defense index helps track and benchmark.
• Suitable for investors who expect steady growth in defense orders and exports over the coming decade.

Nifty India Defense ETF FoF Direct Growth

How the ETF FoF Structure Works

• This scheme is a fund of funds that invests mainly in units of the Groww Nifty India defense ETF.
• Instead of buying the ETF directly on the exchange, investors can use the FoF through standard mutual fund platforms and SIPs.

Key Data

• Latest NAV (15 May 2026): ₹13.19.
• Minimum SIP amount: ₹500.
• Fund size (AUM): ₹125.58 crore.
• Expense ratio: 0.15%.
• Exit load: 1% if redeemed within 30 days.

Points to Know Before Investing

• Returns depend on the ETF’s performance, which in turn follows the defense index.
• FoF structure adds a second layer but makes SIPs and redemptions easy for investors who do not use demat accounts.
• Suitable for those who prefer low expense, index‑driven access to the theme as part of a broader defense mutual fund allocation.

HDFC Defense Fund Direct Growth

Fund Profile

• Actively managed thematic fund focusing on defense and allied sectors.
• The fund manager selects stocks instead of strictly following an index.

Key Data

• Latest NAV (15 May 2026): ₹28.00.
• Minimum SIP amount: ₹100.
• Fund size (AUM): ₹7304 crore.
• Expense ratio: 0.78%.
• Exit load: 1% if units are redeemed within 1 year.

Who May Consider This Fund

• Investors who want active management rather than a strict index approach.
• Those who believe a skilled manager can select the best defense mutual fund stocks within the wider theme.
• Investors are prepared for higher volatility and tracking differences compared with index‑based products.

Key Factors to Evaluate Before Investing in Defense Mutual Funds

Before investing, it is useful to review:

• Risk and concentration: Each fund in this category has exposure to only a single sector, leading to significant price fluctuations.
• Type of fund: Determine whether it is an index fund, ETF-related, or actively managed.
• Past performance: Consider returns across various periods and compare them with the benchmark and competitors.
• Cost: Consider the expense ratio; costs are most important for index funds.
• Investment horizon: Sector themes will typically take a long time to develop. Be disappointed if you are investing for the short term.
• Positioning in the portfolio: Defense funds should normally be a supporting position, not your only equity position.

Benefits and Risks of Investing in Defense Mutual Funds

Possible benefits

• Exposure to a defense/aerospace-focused growth theme.
• Access to specialist shares that a retail investor might struggle to track directly.
• Index funds/ETFs have transparent, rules-based portfolios.

Key risks

• High concentration in one sector increases volatility.
• Returns depend on policy, budgets, order flows, and execution by individual companies.
• Sector funds can underperform the broader market for extended periods if the theme is out of favor.

Who Should Invest in Defense Sector Mutual Funds?

Defense funds may suit the following:

• Investors with a high risk appetite who already hold diversified equity funds.
• People who understand sectoral and thematic investing.
• Long‑term investors are willing to stay through multi‑year ups and downs.

These funds may not suit the following:

• Very conservative investors.
• Those with short horizons or near‑term cash needs.
• Investors who do not track market news or policy changes at all.

In most cases, defense funds are better used as a satellite holding around a diversified core rather than as the main equity investment.

How to Invest in Defense Sector Mutual Funds

Here is how you can start investing in defense sector mutual funds. 

• KYC registration and opening of an investment account with a mutual fund platform/AMC.
• Study the mutual fund document, factsheet, portfolio, and related materials.
• Select between the SIP and lump-sum investment routes.
• Register the mutual fund investment and understand exit loads.

Comparison Between SIP and Lump Sum

• SIPs minimize risks from timing issues and also reduce the average purchase costs.
• Lump-sum investments can be considered by those who have a good understanding of stock valuations.

When choosing a fund, ensure you:

• Check if it’s an index, ETF FoF, or active fund.
• Expenses, AUM, portfolio.
• Compatibility with existing holdings.
• Check fund performance annually and rebalance the portfolio.

Conclusion: Are Defense Sector Mutual Funds Worth Considering in 2026?

Defense-focused funds in India provide targeted exposure to an area that may benefit from higher spending, exports, and policy support over the long term. For investors who already have a diversified core and are comfortable with sector risk, adding a carefully chosen defense mutual fund can provide thematic growth potential.

However, these funds are not low‑risk products. Returns depend on orders, execution, valuations, and government decisions. Only investors with a long horizon and tolerance for volatility should consider them, and the allocation should stay moderate. Used carefully, defense sector mutual funds can complement broader holdings rather than replace them.

Key Highlights

• Defense funds hold mainly defense, aerospace, and allied businesses, so they are more concentrated than normal diversified funds.
• Current options include index funds, ETFs, and a few active schemes that together form a compact defense fund list.
• Returns move with government policy, defense orders, and how individual companies execute projects.
• These funds work better for investors who already own diversified equity and can live with higher volatility for long periods.