HDFC Defence Fund has emerged as the top thematic mutual fund, delivering a 39.2% annual return over the past three years. With an asset base exceeding Rs 10,500 crore, the fund has significantly outperformed its benchmark index. Investors should evaluate these returns across multiple timeframes, as thematic funds can experience high volatility compared to diversified equity funds.
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The HDFC Defence Fund has secured the top position among thematic mutual funds based on three-year compounded annual growth rate returns, achieving a gain of 39.2%. According to data from ACE MF as of July 27, 2026, this performance places the fund ahead of peers such as the SBI PSU Fund and the Aditya Birla SL PSU Equity Fund, which recorded returns of 23.2% and 22.2% respectively during the same period.
The fund currently manages a corpus of Rs 10,529.2 crore, making it the largest among the top five thematic funds that meet the minimum asset size criteria of Rs 1,500 crore. A key factor in this performance is the fund's significant lead over its benchmark index. Over a three-year horizon, the HDFC Defence Fund outperformed its benchmark by 31.1 percentage points, as the benchmark index itself returned 8.2%. Additionally, in the one-year period, the fund recorded a return of 24.8% compared to the benchmark's decline of 2.3%.
While the HDFC Defence Fund shows strength in longer-term windows, thematic fund performance can fluctuate significantly based on sector-specific trends. For instance, in the most recent one-month period, the ICICI Pru Transportation and Logistics Fund emerged as the leader with a 3.1% return. This indicates that sector-specific funds often experience varying performance cycles depending on government policy, order inflows for defence companies, and global supply chain conditions.
Thematic funds, by design, concentrate investments in a specific sector, which can lead to higher risks compared to diversified mutual funds that spread investments across many industries. When defence companies face challenges such as delayed order execution, cost overruns, or changes in government procurement policies, thematic funds in this space may see their performance impacted more sharply than broader market indices.
Investors looking at such funds should monitor the consistency of returns across different periods rather than focusing only on the highest recent gains. Future performance will depend on the continued capital spending by the government on indigenous defence manufacturing and the ability of underlying companies to execute their order books effectively. Understanding the cyclical nature of these sector-focused investments remains important for long-term portfolio planning.