HDFC Defence Fund to stop lumpsum investments and new STPs, restricts SIPs to Rs 10,000

HDFC DEFENCE FUND REPRESENTATIVE

HDFC Mutual Fund has announced its decision to discontinue accepting lumpsum investments in its recently launched HDFC Defence Fund from June 12, 2023, owing to a limited number of defence sector stocks.

The scheme was launched on May 19 and its new fund offer (NFO) period closed on May 30. The fund house has also decided to impose restrictions on the maximum investments through systematic investment plans (SIP), limiting it to Rs 10,000 per month. It will not accept switch-in requests into the HDFC Defence Fund and not allow fresh registrations of systematic transfer plans (STP).

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The restrictions on SIP will be applicable on the first holder PAN level. There are no restrictions on switching out or redeeming the units of the scheme. SIP and STP registered before June 12, 2023, will be processed.

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This is not the first such instance of a mutual fund house restricting inflows into a scheme. Such restrictions are imposed to ensure optimum deployment of money received from the investors especially when the fund manager is investing in relatively less liquid stocks of mid and small-sized companies.

The fund

HDFC Defence Fund is the first defence-focused scheme that aims to generate capital appreciation by investing in shares of companies that operate in defence and allied sectors. Being a sectoral offering, this is a relatively high-risk option compared to diversified equity funds. The scheme had a universe of 21 stocks, many of which are mid and small-sized companies. The scheme is managed by Abhishek Poddar and the performance of the scheme is benchmarked against Nifty India Defence Index TRI.

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In fact earlier, it had closed its NFO two days before the date it had earlier announced. That, too, was done to limit its inflows.

Defence spending across the globe is going up and so is the case in India. Companies operating in this sector are expected to do well. However, a limited number of companies in the Indian listed universe and relatively higher valuations are some of the challenges the investors face.