HDFC Defence Fund recorded an 11.8% return over the past three months, outperforming peers like Quant Quantamental and Kotak Pioneer. With assets under management exceeding Rs 10,500 crore, the fund has demonstrated significant long-term alpha compared to its benchmark.
Detailed Coverage
HDFC Defence Fund has established itself as the leading performer among thematic mutual funds, delivering an 11.8% return over the last three months as of July 21, 2026. This performance stands out against other thematic offerings, with the Quant Quantamental Fund recording 9.9% and the Kotak Pioneer Fund at 8.6% during the same period. The data, based on figures from ACE MF, focuses on funds with at least Rs 1,500 crore in assets under management.
Asset Size and Long-Term Alpha
Beyond its recent gains, the HDFC Defence Fund currently manages a corpus of Rs 10,529.2 crore, making it the largest among the top five thematic funds in this category. The fund’s ability to generate returns has been consistent over longer periods as well. On a one-year timeframe, the fund delivered 21.1%, representing a significant outperformance of 23.6 percentage points over its benchmark, which returned -2.5%.
This trend is even more pronounced over a three-year horizon, where the fund achieved a 39.8% return compared to the benchmark's 8.3%, marking a 31.6 percentage point lead. Such performance suggests that the fund’s thematic strategy is effectively capturing value within the defence sector, which has seen increased capital allocation and order inflows from the government.
Understanding Thematic Risks
While the fund’s returns have been strong, investors should note that thematic mutual funds carry different risk profiles compared to diversified equity funds. Because these funds concentrate their investments in a single sector, they are more sensitive to industry-specific developments. If government defence spending slows, policy changes occur, or major contract execution faces delays, the fund’s performance could experience sharper fluctuations than a broad market index fund.
Investors monitoring this fund should consider that its future performance remains linked to the health and growth of the Indian defence manufacturing sector. Key factors to watch include the pace of new order awards from the Ministry of Defence, the actual execution of existing order books by the underlying companies held in the portfolio, and any changes in the geopolitical environment that drive defence demand. As with all sectoral funds, the strategy is best suited for those comfortable with the inherent volatility of focusing on a single industry.