Defence funds vs infra funds: After a prolonged slump in Indian equities from November 2024 to April 2025, markets began showing signs of revival by mid-April. Among the first to benefit from this rebound were defence mutual funds, which surged on the back of a mix of geopolitical triggers and favourable government policies. But with that sharp rally now cooling off, the market’s attention is increasingly shifting toward another sector poised for long-term growth: infrastructure funds.
According to Chirag Muni, Executive Director, Anand Rathi Wealth Limited, the defence fund rally was driven by a confluence of factors. “Increased government spending on defence modernisation, policy initiatives like Make in India and Atmanirbhar Bharat, and geopolitical tensions significantly lifted sentiment,” Muni explained. But he also cautioned that such momentum in the defence sector tends to be event-driven and short-lived, often followed by a cooling-off phase.
A key trigger this time was the Operation Sindoor launched on May 7, 2025, which led to a significant escalation in geopolitical tensions with Pakistan. In the two weeks following the operation, the Nifty India Defence Index TRI rallied 22% (as of May 23, 2025), far outpacing the Nifty 500 TRI, which gained just 3% during the same period. “Clearly, the market picked its favourite regiment,” Muni noted.
Even before the late-2024 correction, defence stocks had delivered staggering returns. From its launch in January 2022 to its July 2024 peak, the Nifty India Defence Index delivered an annualised return of 109%, or a cumulative gain of 519%. In comparison, the broader Nifty 500 TRI returned a modest 19% annualised. But the sector wasn’t immune to correction—the defence index dropped sharply from July 2024 to February 2025, reflecting its inherent volatility.
Recent returns for defence mutual funds further underline the sector’s explosive potential. The Motilal Oswal Nifty India Defence Index Fund Direct Growth returned 26.11% in just one month. The Aditya Birla Sun Life Nifty India Defence Index Fund Direct Growth followed closely with 26.10%, while the Groww Nifty India Defence ETF FoF Direct Growth delivered 25.85%.
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Motilal Oswal Nifty India Defence Index Fund (Direct Growth): 1-month return of 26.11%
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Aditya Birla Sun Life Nifty India Defence Index Fund (Direct Growth): 1-month return of 26.10%
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Groww Nifty India Defence ETF FoF (Direct Growth): 1-month return of 25.85%
However, as that rally begins to stabilise, infrastructure funds are emerging as the next big theme in the mutual fund space. “Infrastructure mutual funds, after months of underwhelming performance, have come back strongly, riding the broader market recovery, government capex push, and an expected rate cut cycle by the RBI,” Muni said.
According to the latest data, infrastructure mutual funds posted an average return of 19.40% over the past three months, a sharp reversal from their one-year average return of -3.15%. Top performers include:
Invesco India Infrastructure Fund with 26.82% three-month returns (vs -2.63% over 6 months and -1.86% over a year),
“Infrastructure is better diversified compared to other thematic funds,” Muni explained. “It spans across cement, engineering, logistics, urban housing, utilities, metals, telecom, and capital goods—reducing exposure to any one sub-sector.”
While the outlook for infra funds appears structurally strong, Muni advised restraint. “Sectoral and thematic funds carry higher concentration risk. We recommend investors limit exposure to 5–10% of their total portfolio and reserve these funds for those with higher risk tolerance and a long-term horizon,” he said.
Top Performing Infrastructure Funds
For most retail investors, Muni suggests diversified equity funds, which provide exposure across market caps, industries, and themes. “They help mitigate the volatility and sector-specific risks that come with thematic investments,” he added.
With defence funds having possibly peaked in the short term, and infrastructure funds gathering strong momentum, investors would do well to align their allocations with both the macroeconomic outlook and their own risk profile.