SBI Mutual Fund Launches BSE India Defence ETF; NFO Opens Today

SBI Mutual Fund has announced the launch of the SBI BSE India Defence ETF, an open-ended exchange-traded fund that will track the BSE India Defence Index. The New Fund Offer (NFO) opens for subscription today, according to a CNBC TV18 report. This marks a significant addition to the growing suite of sectoral and thematic ETFs available to Indian investors, particularly those looking to gain exposure to the country's defence and aerospace sector.

The BSE India Defence Index is designed to capture the performance of companies engaged in the defence and aerospace industry. The index constituents include major players such as Hindustan Aeronautics Ltd (HAL), Bharat Electronics Ltd (BEL), Bharat Dynamics Ltd (BDL), Mazagon Dock Shipbuilders, Cochin Shipyard, and Bharat Earth Movers Ltd (BEML). These companies are central to India's defence manufacturing ecosystem and have benefited from the government's push for indigenisation and increased defence spending.

According to the source, the BSE India Defence Index has delivered a trailing return of 57.7% over the past year, significantly outperforming broader market indices. The index's one-year return stands at 57.7%, while the three-year return is 37.2% and the five-year return is 28.5%. These figures highlight the strong momentum in the defence sector, driven by rising order books, government contracts, and export opportunities. The table below summarises the key details of the NFO and the index performance.

The NFO will be available for subscription at a minimum investment of ₹500 per application. The scheme will be managed by a fund manager appointed by SBI Mutual Fund, and the ETF will be listed on the BSE and NSE after the NFO period closes. Investors can subscribe to the NFO through the SBI Mutual Fund website, authorised distributors, or online platforms. The ETF will aim to provide returns that closely correspond to the total returns of the BSE India Defence Index, subject to tracking errors.

Analysts say the defence sector has emerged as a strong thematic play in the Indian equity market, backed by robust government spending and a growing order pipeline for domestic manufacturers. However, they also caution that sectoral funds can be volatile and investors should consider their risk appetite before investing.

The launch of the SBI BSE India Defence ETF comes at a time when the Indian government has been increasing its defence budget and promoting self-reliance in defence manufacturing. The fiscal year 2024-25 budget allocated ₹6.21 lakh crore to the Ministry of Defence, a 4.7% increase over the previous year. This sustained spending is expected to benefit companies in the defence sector, making the ETF an attractive option for investors seeking exposure to this theme. The BSE India Defence Index has a total of 10 constituents, with the top three companies accounting for a significant portion of the index weight.

Investors should note that ETFs are subject to market risks and the returns of the underlying index may not be replicated exactly due to tracking errors, expenses, and other factors. The NFO period is a limited window, and investors are advised to read the scheme information document carefully before investing. The ETF will provide an opportunity to invest in a diversified portfolio of defence companies, which may otherwise be difficult for retail investors to access individually. As with any sectoral investment, it is advisable to consult a financial advisor and consider the role of such a fund in one's overall portfolio.

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