HDFC Defence Fund stops lump sum investments, restricts SIPs to Rs 10,000

HDFC Mutual Fund has announced the discontinuation of lump sum subscriptions and restrictions on systematic transactions in its recently launched HDFC Defence Fund from June 12, 2023, citing the limited number of defence sector stocks.

Analysts say that while defence spending across the globe, including India, is rising, the limited pool of listed companies in the country that have relatively higher valuations is one of the challenges investors may face.

According to the HDFC MF press note, regarding the HDFC Defence Fund, it has decided that fresh lump sum investments (including switch-ins) will be discontinued. This means you cannot make fresh lump sum investments. Second, fresh SIP registrations (including SIP top up) only under monthly frequency shall be registered for up to Rs 10,000 per investor (aggregated at first holder PAN level). This means the restrictions on SIP will be applicable on the first PAN holder. Third, no new systematic transfers (STPs) into the scheme shall be registered.

Investors should also note that there are no restrictions on redeeming money from the scheme. According to the HDFC press note, “Systematic transactions registered prior to the effective date shall continue to be processed. Further, there shall be no restrictions on redemptions. All other terms and conditions, as mentioned in the scheme information document (SID) / key information memorandum (KIM) of the scheme, will remain unchanged.”

HDFC Defence Fund 

The scheme was launched on May 19, 2023, and its new fund offer (NFO) period ended on May 30. It was launched to provide long-term capital appreciation by investing predominantly in equity and equity-related securities of companies in defence and allied sectors. The fund manager of the scheme is Abhishek Poddar, and it was categorised under thematic/sectoral fund. The benchmark for fund is Nifty India Defence Index TRI (total returns index).

Investors must know that it is a highly risky fund before considering investing. According to the HDFC website, the investment period should be more than 3 years if you are investing in such a scheme. The fund is suitable for wealth creation.

Key risks

Indian and Foreign government policies have large ramifications for the sector.

Buyer concentration risk: Government of India is a large buyer as it looks to meet the requirements of the defence forces.

Concentration risk: The upper ceiling on investments made is in accordance with their weighting in the Nifty India Defence Index or 10 per cent of the NAV of the scheme, whichever is higher.

Stocks within the portfolio could display correlation as they relate to the same sector and face similar risks.