HDFC Mutual Fund has now aimed its guns on the defence sector by filing for a new fund focused on it. This new defence fund on the block will be the first of its kind in the ₹37 lakh crore mutual fund industry.
The HDFC Defence Fund will be a sectoral fund that will park its money in shares of companies operating in the defence sector. Right now, the mutual fund house is awaiting approval from the market regulator Securities and Exchange Board of India (SEBI).
This new fund would be benchmarked against the newly launched NIFTY India Defence Index. The stocks that are currently listed in the index include Astra Microwave Products, BEML, Bharat Dynamics, Bharat Electronics, Cochin Shipyard, Garden Reach Shipbuilders & Engineers, Hindustan Aeronautics, MTAR Technologies, Mazagaon Dock Shipbuilders and Solar Industries.
The companies listed in this newly launched defence index are either part of the defence industry or are those that earn at least 10 per cent of their revenues from this industry. Experts’ assessment of the index highlights that this index has delivered 25 per cent returns in the last four years.
Sector funds are deemed to be riskier and more volatile than the broad market. To date, most sector funds launched by various asset management companies in India have invested in specific sectors including banking, manufacturing, FMCG, pharmaceuticals, information technology, infrastructure and telecom. The data from the Association of Mutual Funds in India (AMFI) reveal that these funds still account for ₹1.43 lakh crore worth of the investors’ money parked in the mutual fund industry.
Though sectoral funds have yielded competitive returns in the past, you must invest in these funds when you are sure that investments into these sectors have a high growth potential in the future. A lot depends on the timing of the investments, which is why you must keep abreast of news in a particular sector before putting your money in it. Accurate timing of the investments can help you earn really good profits.
The continued clashes between various countries, especially, the recent Russia-Ukraine skirmish have prompted many countries including India to strengthen the defence sector. In Budget 2022, India’s Finance Minister allocated ₹5.25 lakh crores for the defence sector alone. This new fund, if approved and launched, would be a trailblazer in the defence sector of the mutual fund industry.