HDFC MF stops new SIP registrations in defence fund amid valuation concerns

The scheme's new fund offer was introduced in May 2023 and was closed earlier than schedule because of interest received from investors

HDFC Mutual Fund will discontinue registering fresh systematic investment plans (SIPs) in its HDFC Defence Fund from July 22, 2024, citing cited valuation concerns. The scheme had stopped taking inflows through the lump sum route soon after its launch in June 2023.
 

What is HDFC Defence Fund?
 

It is a sectoral mutual fund scheme that aims to provide long-term capital appreciation by investing in equity and equity-related securities of companies in defence and allied sectors. The scheme is benchmarked against Nifty India Defence Index TRI and it is managed by Abhishek Poddar and Dhruv Muchhal.

 

The fund has Rs 3,233 crore in assets under management (AUM) and has delivered a point-to-point return of 130 per cent since inception in 2023. Investors who started an SIP of Rs 5,000 in the scheme would have accumulated around Rs 1.04 lakh. The benchmark Nifty India Defence Total Return Index has also recorded similar returns.
 

Why does the fund house restrict inflows?
 

Fund houses restrict inflows to a scheme when the scope for deployment of fresh money shrinks owing to elevated valuations or other reasons. In the recent past, several smallcap funds have imposed restrictions on new investments. However, HDFC Defence Fund may be the first instance of a scheme putting a stop to SIP registrations.
 

Why has HDFC halted new SIPs?
 

HDFC Mutual Fund is facing challenges in deploying funds due to valuation concerns. As a result, it has capped SIP investments in the sectoral fund at Rs 10,000 per month. Referring to last year's discontinuation of lump sum investments and restrictions on systematic transactions, HDFC Mutual Fund announced in a notice-cum-addendum on Tuesday that new SIP registrations in the Defence Fund will not be accepted starting July 22.
 

However, there shall be no restrictions on redemptions/switch-outs/STP-outs in the scheme. All other terms and conditions as mentioned in the scheme information document (SID)/key information memorandum (KIM) of the scheme will remain unchanged, HDFC Mutual Fund said.

 

HDFC Defence Fund has 21 stocks in its portfolio. Over half of the AUM is invested in three defence companies, Hindustan Aeronautics, Bharat Electronics and Astra Microwave Products, while the remaining 18 account for 50 per cent. Many of the PSU stocks across sectors are traded close to their life-time high.