HDFC Mutual Fund has said that it will halt accepting new registrations for systematic investment plans (SIPs) in HDFC Defence Fund starting from July 22. It said that any SIPs or transactions registered before July 22nd will be processed as per usual.
Although SIPs registered before the effective date will proceed as scheduled, investments made through lumpsum or systematic transfer plans (STP) in this fund will no longer be accepted, HDFC MF said in a statement on July 9. Existing systematic transactions will carry on as planned, and there will be no restrictions on redemptions or transfers to other funds.
HDFC Mutual Fund made the decision to stop accepting lump sum investments in the actively managed Defence Fund in June due to the fund’s restricted exposure to defence sector stocks. The scheme’s new fund offer was introduced in May 2023 and was closed earlier than scheduled because of the substantial interest received from investors.
The scheme is managed by Abhishek Poddar – Fund Manager, Equity and Senior Equity Analyst, Dealing and Investments at HDFC AMC, and the performance of the scheme is benchmarked against Nifty India Defence Index TRI.
HDFC Defence Fund is categorised as a highly concentrated fund, primarily invested in 21 stocks, with the top five stocks making up 63 percent of the fund’s holdings. Being mid- and small-cap focused, the fund’s investment strategy reflects its concentrated nature.
Finding it difficult to deploy funds due to concerns over valuation, HDFC MF has already capped SIP investment in the sectoral fund at Rs 10,000 per month.
HDFC Defence Fund is designed to achieve capital appreciation through investments in companies within the defence and allied sectors. It is important to note that this fund is categorized as a sectoral offering, which implies a higher level of risk compared to more diversified equity funds.
Currently, the fund boasts an asset under management of Rs 3,233 crore and has demonstrated a commendable point-to-point return of 130 percent.
For example, investors who initiated a systematic investment plan (SIP) of Rs 5,000 in the first month of the scheme would have accumulated approximately Rs 1.04 lakh. The benchmark for this fund, the Nifty India Defence Total Return Index, has shown a comparable return on a point-to-point basis.
HDFC Defence Fund has a portfolio of 21 different stocks. A significant portion of the assets is allocated to the top three defence companies within the portfolio: Hindustan Aeronautics, Bharat Electronics, and Astra Microwave Products. These three companies collectively hold over half of the fund’s investments. On the other hand, the remaining 18 stocks in the portfolio make up the remaining 50 percent of the allocation.
Furthermore, it is noteworthy that several Public Sector Undertaking (PSU) stocks spanning various sectors are currently trading at or near their all-time high prices.