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Synopsis: India’s only active defence-focused mutual fund, the HDFC Defence Fund, reshuffled its portfolio in December 2025 by increasing exposure to key defence stocks such as Bharat Dynamics, Mazagon Dock Shipbuilders and Hindustan Aeronautics, while completely exiting Dee Development Engineers. The fund also added new positions in Bosch and Aequs, underscoring a selective, conviction-driven approach amid volatility in defence stocks. As of December-end, the fund’s total assets under management stood at ₹7,390 crore.
HDFC Defence Fund, the country’s only actively managed defence sector mutual fund, made several notable portfolio changes in December, reflecting evolving opportunities within India’s defence and manufacturing ecosystem. While the broader defence theme remains intact, the fund appears to be fine-tuning its exposure across public sector undertakings, electronics suppliers, and engineering-focused plays.
Increased Exposure to Core Defence Players
During December, the fund raised its stake in five companies, with a clear tilt towards defence PSUs and allied manufacturers.
The most significant addition was in Bharat Dynamics, where the fund added approximately 2.41 lakh shares, taking its total holding to 29.42 lakh shares, up from about 27 lakh shares in November. Bharat Dynamics remains a key beneficiary of India’s missile and defence equipment indigenisation push.
The fund also increased exposure to:
These additions signal continued confidence in companies aligned with defence electronics, shipbuilding, and aerospace manufacturing.
New Entrants: Bosch and Aequs Added to Portfolio
December also saw the inclusion of two new stocks in the fund’s portfolio:
The inclusion of these companies suggests the fund is broadening its exposure beyond traditional defence PSUs to include precision manufacturing and engineering-led firms with defence supply chain relevance.
Complete Exit from Dee Development Engineers
In contrast to the additions, the fund fully exited Dee Development Engineers, selling its entire holding during the month. While the fund did not publicly state reasons for the exit, such moves typically reflect reassessment of growth visibility, valuation comfort, or alignment with long-term defence themes.
No Reduction in Existing Core Holdings
Importantly, the fund did not reduce its stake in any existing holding during December. Investments in 17 stocks remained unchanged, including well-known names such as:
This stability suggests that the portfolio reshuffle was driven more by incremental conviction and selective exits rather than broad de-risking.
Fund Size, Allocation and Investment Profile
As of 31 December 2025, the HDFC Defence Fund’s total AUM stood at ₹7,390 crore. The fund was launched on June 2, 2023, and is benchmarked against the Nifty India Defence TRI. It is managed by Rahul Baijal.
Market-cap allocation:
Overall, 98.95% of the portfolio is invested in equities, reflecting a high-conviction thematic approach.
Performance Snapshot: Short-Term Pressure, Long-Term Strength
| Period | Fund Return | Benchmark Return |
|---|---|---|
| Last 3 months | -3.62% | -2.29% |
| Last 6 months | -3.84% | -6.91% |
| Last 1 year | 18.13% | 27.00% |
| Since inception (CAGR) | 39.28% | — |
While short-term performance has been under pressure due to sector volatility, the fund has delivered strong long-term compounded returns since inception, according to data from ACE MF.
The Bigger Picture
HDFC Defence Fund’s December portfolio changes reflect a measured recalibration rather than a thematic shift. The fund continues to back India’s defence manufacturing story while refining exposure within the ecosystem. With government-led defence spending, indigenisation initiatives, and export opportunities still intact, the fund remains positioned for long-term investors who can tolerate near-term volatility.
DISCLAIMER: This article is for informational purposes only and does not constitute investment advice. Mutual fund investments are subject to market risks. Past performance is not indicative of future results. Investors are advised to consult a financial advisor before making investment decisions.
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