HDFC Mutual Fund will discontinue registering fresh systematic investment plans in its Defence Fund from July 22. The fund house will process only SIPs and systematic transactions registered before July 22.
Last June, HDFC MF discontinued accepting lumpsum investments in the actively managed Defence Fund owing to a limited number of defence sector stocks.
The new fund offer of the scheme was launched last year in May and was closed two days in advance due to overwhelming response.
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Finding it difficult to deploy funds due to concerns over valuation, HDFC MF has already capped SIP investment in the sectoral fund at ₹10,000 per month.
Referring to last year’s discontinuation of lumpsum and restrictions on systematic transactions, HDFC MF in a notice-cum-addendum on Tuesday said fresh SIP registrations in the Defence Fund will not be accepted from July 22.
Shruti Jain, Chief Strategy Officer, Arihant Capital said mutual funds face challenge in deploying excess cash flow effectively when there is a surge in inflows due to high investors interest, particularly when a fund outperforms its peers or the broader market.
A fund also restricts inflows if the fund manager cannot find suitable investment opportunities that align with the fund’s strategy and the cash holding can potentially drag down returns, said Jain.
HDFC Defence Fund aims to generate capital appreciation by investing in shares of companies operating in the defence and allied sectors. As a sectoral offering, this is a relatively high-risk option compared to diversified equity funds.
The fund currently has asset under management of ₹3,233 crore and has delivered a point-to-point return of 130 per cent.
Investors who started an SIP of ₹5,000 on the first month in the scheme would have raked in about ₹1.04 lakh. The benchmark, the Nifty India Defence Total Return Index, has recorded a similar return on a point-to-point basis.
The fund is the only actively managed equity scheme in the defence sector. The order book of defence companies swells with the government’s drive to increase indigenisation in the defence sector to curb imports. In the interim Budget, the Modi government has increased capital allocation to the defence sector to ₹1.72 lakh crore.
HDFC Defence Fund has 21 stocks in its portfolio. Over half of the AUM is invested in top 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.
Recently, Motilal Oswal Asset Management Company collected ₹1,676 crore through its NFO on passive Defence Index Fund.