India’s thematic fund space has expanded rapidly over the past two years, powered by record defence orders, rising domestic manufacturing contracts and an investment cycle that has started to broaden across sectors. The shift has pushed many investors to move beyond vanilla large-cap and flexi-cap categories and explore funds linked to specific policy-driven themes.
Defence and manufacturing, in particular, have emerged as two of the most widely tracked baskets. Before selecting one, it helps to understand how each segment is positioned, how fund managers construct portfolios in these themes and what the latest data suggests.
What are manufacturing and defence mutual funds?
Manufacturing mutual funds invest in companies that derive a substantial share of their revenue from industrial production, auto, energy, metals, engineering and consumer durables. These schemes benefit when capacity utilisation rises, private capex picks up, and government-linked production incentives create new investment opportunities.
Defence mutual funds, meanwhile, invest in listed stocks directly linked to aerospace, defence equipment, shipyards, explosives, communication systems and precision engineering. These portfolios are driven by government indigenisation programmes, export orders and rising defence budgets across friendly nations.
Both themes carry a very high risk, but each responds to policy triggers differently. Manufacturing portfolios tend to be more cyclical, whereas defence funds rely heavily on concentrated order flows.
Top defence and manufacturing funds compared
The funds featured in this comparison are Motilal Oswal Nifty India Defence Index Fund (Direct–Growth), HDFC Defence Fund (Direct–Growth), Navi Nifty India Manufacturing Index Fund (Direct–Growth), and Baroda BNP Paribas Manufacturing Fund (Direct–Growth). We have selected these funds purely based on performance. Each of them ranks among the strongest one-year CAGR performers within their own category as of 11 December 2025.
This selection is based on return screens from the Financial Express mutual fund screener, which offers verified NAV history, portfolio disclosures, cost structures and category-wide rankings. This keeps the list objective: only the highest one-year performers across defence and manufacturing themes make the cut.
#1: Motilal Oswal Nifty India Defence Index Fund – Direct Plan
This passive thematic fund tracks the Nifty India Defence TRI and holds 18 stocks. Its NAV is Rs 9.91 and the fund’s AUM stands at Rs 3,892.96 crore. The scheme has delivered a 1-year CAGR of 8.87%. The expense ratio is 0.50%, while the exit load is 1% if redeemed within 15 days. The portfolio turnover ratio used previously for this scheme was around 30%, which suggests limited trading activity.
The portfolio is heavily skewed towards industrials at 77.3%, followed by materials at 15.4%, technology at 6.2% and consumer discretionary at 1.1%. The top holdings are Bharat Electronics at 20.62%, Hindustan Aeronautics at 19.20%, Bharat Forge at 13.33%, Solar Industries at 11.27% and Mazagon Dock at 7.10%. The remaining allocation is spread across Cochin Shipyard, Bharat Dynamics, Data Patterns, GRSE and Astra Microwave. The fund is managed by Swapnil P Mayekar, Rakesh Shetty and Dishant Mehta.
#2: HDFC Defence Fund – Direct Growth
This actively managed thematic scheme holds 23 stocks and remains one of the highest AUM funds in the category. The NAV is Rs 23.39 and AUM is Rs 7,402.96 crore. The fund’s 1-year CAGR stands at 1.90%, lower than its index counterparts. The expense ratio is 0.81% and the exit load is 1% if redeemed within a year. The portfolio turnover ratio used in past disclosures was 12.73%, indicating a steady buy-and-hold style.
Industrials dominate the fund, with key positions such as Bharat Electronics at 18.82%, Hindustan Aeronautics at 13.81%, Bharat Forge at 12.90%, Solar Industries at 11.03% and BEML at 7.04%. Additional holdings include Bharat Dynamics, Astra Microwave, MTAR, Eicher Motors and Premier Explosives. The fund is managed by Rahul Baijal and Priya Ranjan. Notably, the scheme’s performance is still emerging as it was launched in June 2023, and the shorter track record should be factored in.
#3: Navi Nifty India Manufacturing Index Fund – Direct Growth
This index fund tracks the Nifty India Manufacturing Index and has a NAV of approximately Rs 18.27 as on 11 December 2025. The AUM stands at Rs 69.77 crore. The scheme’s 3-year CAGR is 21.47%, while the 1-year CAGR is 4.7%. The expense ratio is 0.41% and there is no exit load. Earlier values indicate a portfolio turnover ratio of about 9.20%, suggesting minimal rebalancing.
The portfolio includes 75 stocks with significant exposure to giant caps at 53.12%, large caps at 29.65% and mid-caps at 17.23%. Top holdings include Reliance Industries at 5.28%, Maruti Suzuki at 4.86%, Mahindra & Mahindra at 4.82%, Sun Pharma at 4.64%, Tata Steel at 3.94% and Bharat Electronics at 3.73%. The fund is managed by Aditya Venkatesh Mulki and Ashutosh Shirwaikar.
#4: Baroda BNP Paribas Manufacturing Fund – Direct Growth
This actively managed thematic fund has a NAV of Rs 10.18 and an AUM of Rs 1,031.34 crore. The scheme has delivered a 1-year CAGR of 5.4%, placing it ahead of many peers in its category. The expense ratio is 1.14% and the exit load is 1% if more than 10% of units are redeemed within a year. Earlier disclosures show relatively moderate portfolio concentration, with the top 5 stocks making up 26% of the fund.
Sectoral allocation is diversified across healthcare at 21.9%, consumer discretionary at 20.9%, industrials at 19.1%, materials at 16.2% and energy and utilities at 15.9%. Key holdings include Reliance Industries at 7.28%, Divi’s Labs at 6.33%, Mahindra & Mahindra at 4.56%, Hitachi Energy at 4.35% and Maruti Suzuki at 3.30%. The fund is jointly managed by Jitendra Sriram and Kushant Arora.
Is it good to invest in defence or manufacturing mutual funds?
Defence and manufacturing funds draw from the same policy momentum, but they behave very differently in a portfolio. Defence schemes remain concentrated, with most of their weight sitting in a few companies tied to aerospace, explosives and specialised engineering. Crisil expects private defence firms to post 16–18% revenue growth this fiscal, supported by rising domestic orders and the indigenisation drive. This has pushed companies to step up research and development spending, widening the sector’s long-term pipeline.
Manufacturing funds could potentially spread risk across a much larger industrial base. The Production-Linked Incentive programme continues to attract new capacity, and CMIE data shows 73.2% of new project announcements in the September quarter came from manufacturing. Autos, electronics, metals and capital goods firms have outlined multi-year capex plans. A Boston Consulting Group study estimates manufacturing could rise from 17% to nearly 25% of GDP by 2047, driven by defence, automotive, electronics, energy and pharmaceuticals.
Together, the two themes capture different layers of India’s growth cycle. Defence suits investors comfortable with narrower, high-conviction portfolios, while manufacturing appeals to those who prefer broader participation across industries. The decision comes down to concentration tolerance and which part of the policy push an investor wants exposure to.
The Investor’s Takeaway
Defence and manufacturing funds are linked to large structural shifts in the economy. Defence allocations suit investors comfortable with concentrated portfolios and policy-led order flows. Manufacturing schemes offer broader exposure across industries and tend to benefit from the domestic investment cycle. Both require a multi-year investment horizon due to their high-risk nature. Investors who prefer stability may consider manufacturing funds, while those willing to tolerate sharper movements in pursuit of higher potential gains may evaluate defence funds. Regardless of theme, disciplined allocation and periodic review remain essential.
It is also worth noting that defence and manufacturing schemes fall under the sectoral and thematic mutual fund category. Unlike diversified equity funds, which invest across sectors and market cycles, these schemes concentrate their portfolios around a specific theme. As a result, returns may tend to be more sensitive to policy decisions, order inflows and shifts in the investment cycle. For this reason, such funds are usually tracked as part of a broader equity allocation rather than as standalone substitutes for diversified funds.
Disclaimer: The above content is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.