HDFC Mutual Fund to halt new SIPs in its Defence Fund from July 22

Scheme to take inflows only from existing SIPs, STPs

HDFC Mutual Fund (MF) has announced that its Defence Fund will stop accepting fresh systematic investment plan (SIP) registrations from July 22. The scheme had stopped taking inflows through the lumpsum route soon after its launch in June 2023.

Post July 22, the scheme will accept inflows only from existing SIPs and systematic transfer plans (STPs).

Fund houses generally restrict inflows into 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, this may be the first instance of a scheme putting a stop to SIP registrations.

 

The HDFC Defence Fund, which manages over Rs 3,000 crore, is at the top of the returns chart in the one-year period, having delivered a 144 per cent return.

Defence sector stocks have seen a sharp rally in the past couple of years. Several stocks have grown multi-fold in recent years amid the government's thrust on reducing imports and boosting defence exports.

However, the sharp rally has led to steep valuations. The trailing 12-month price-to-earnings (PE) ratio of Nifty India Defence Index has surged to 77.3x as against the 5-year average of 34.1x.

HDFC Defence Fund portfolio is fairly concentrated, as is the case for most thematic funds. As of May end, top 10 stocks in the portfolio accounted for nearly 86 per cent of the scheme's AUM. There were 21 stocks in the portfolio in May with Hindustan Aeronautics and Bharat Electronics having 22 per cent weight each.

The fund is the only active fund in the defence space. Recently, Motilal Oswal MF launched a passive defence fund which tracks the Nifty India Defence Index.