HDFC Defence Fund SIP closure

HDFC Mutual Fund to Stop New SIPs for Defence Fund Starting July 22

HDFC Mutual Fund Halts New SIP Registrations for Defence Fund from July 22

Starting July 22, HDFC Mutual Fund will no longer accept new systematic investment plans (SIPs) for its Defence Fund. Only SIPs and systematic transactions registered before this date will be processed.

In June of last year, HDFC MF stopped accepting lump-sum investments in the Defence Fund due to the limited number of stocks in the defence sector.

Launched in May of the previous year, the new fund offer of the scheme was closed two days early due to overwhelming demand.

Limited Investment Options and Valuation Concerns

With valuation concerns making it challenging to deploy funds, HDFC MF has capped SIP investments in the sectoral fund at ₹10,000 per month. The HDFC Defence Fund aims to generate capital appreciation by investing in shares of companies operating in the defence and allied sectors. As a sector-specific fund, it carries higher risk compared to diversified equity funds.

Fund Performance and Portfolio

The fund currently manages assets worth ₹3,233 crore and has delivered a point-to-point return of 130%. An investor who started a ₹5,000 SIP at the fund’s inception would have accumulated around ₹1.04 lakh. The benchmark, the Nifty India Defence Total Return Index, has recorded a similar return.

Government Initiatives and Market Performance

The HDFC Defence Fund is the only actively managed equity scheme in the defence sector. It benefits from the government’s push for indigenization in the defence industry, which aims to reduce imports. The Modi government increased the capital allocation for defence to ₹1.72 lakh crore in the interim Budget.

The fund’s portfolio includes 21 stocks, with over half of its AUM invested in Hindustan Aeronautics, Bharat Electronics, and Astra Microwave Products. The remaining 18 stocks make up the other 50%. Many PSU stocks in the portfolio are trading near their all-time highs.

Recent Developments

Motilal Oswal Asset Management Company recently raised ₹1,676 crore through its new fund offer (NFO) for a passive Defence Index Fund.

conclusion

HDFC Mutual Fund’s decision to halt new SIP registrations for its Defence Fund from July 22 reflects the challenges of limited investment options and valuation concerns in the defence sector. Despite these constraints, the fund has shown robust performance, supported by government initiatives to boost indigenization in the defence industry. Investors already enrolled will continue to benefit from the fund’s strategic investments, although new participants will face restrictions. This move underscores the importance of evaluating sector-specific risks and opportunities in mutual fund investments.