The Groww Nifty India Defence ETF Fund of Fund (FOF) is an innovative investment product aimed at providing exposure to India’s burgeoning defense sector. As defense spending continues to rise, with the government’s increasing focus on self-reliance and defense modernization, this ETF taps into the growth potential of companies involved in defense manufacturing, technology, and infrastructure.
Opening and Closing Dates
The New Fund Offer (NFO) for Groww Nifty India Defence ETF FOF opened on August 25, 2023, and closed on September 5, 2023. Post this period, units of the fund were available for trading on the stock exchanges under normal conditions.
Structure and Investment Objective
A Fund of Fund (FOF) invests in other mutual funds or ETFs, offering investors a diversified portfolio without directly holding individual stocks. The Groww Nifty India Defence ETF FOF aims to mirror the performance of the Nifty India Defence Index, which includes top Indian defense and aerospace companies. This offers investors a convenient and cost-effective way to invest in multiple defense companies through a single product, bypassing the complexities of individual stock selection.
The investment is primarily in the Groww Nifty India Defence ETF, which tracks the Nifty India Defence Index. The companies included in this index range from defense manufacturers to service providers that cater to the sector, making it a comprehensive play on the growing defense market.
Why the Defence Sector?
India is one of the world’s largest importers of defense equipment, and with rising geopolitical tensions, the government has been working towards building a self-reliant defense ecosystem. The Defence Acquisition Procedure (DAP) 2020 emphasizes indigenization, fostering opportunities for Indian defense companies. The Government of India’s “Make in India” and Atmanirbhar Bharat initiatives have further bolstered the sector by encouraging local production.
In terms of numbers, India’s defense budget has been growing year on year. For the fiscal year 2023-2024, the defense allocation stood at approximately ₹5.94 trillion, an increase of 13% over the previous year. This growth trajectory reflects the increasing strategic importance of the sector.
Key Companies in the Nifty India Defence Index
The index consists of companies that are key players in India’s defense and aerospace sector. Some of the prominent names include:
- Hindustan Aeronautics Ltd (HAL): A state-owned aerospace and defense company, HAL is a major player in aircraft manufacturing.
- Bharat Electronics Ltd (BEL): Specializing in electronics for defense applications, BEL has a crucial role in India’s defense infrastructure.
- Bharat Forge Ltd: Known for its leadership in forging, Bharat Forge also manufactures critical components for defense equipment.
- L&T: A diversified conglomerate, Larsen & Toubro has a strong presence in defense manufacturing and infrastructure.
Performance and Expectations
Investors looking at defense ETFs should consider the sector’s growth prospects. Over the past few years, defense stocks have witnessed a steady upward trend due to rising government contracts, improving corporate earnings, and a surge in private-sector involvement. In the first half of 2023, defense-related stocks in India outperformed many other sectors, benefitting from a growing order book and increasing exports.
However, like any thematic investment, defense ETFs carry sector-specific risks. A reduction in government spending or delays in project executions can impact the profitability of the underlying companies. It’s important for investors to assess their risk appetite and diversify their overall portfolio.
Fund Details and Costs
- Expense Ratio: The expense ratio of the FOF is 0.50% for the direct plan, which is relatively low and suitable for long-term investors.
- Minimum Investment: Investors could enter the NFO with a minimum investment of ₹500 during the subscription period.
- Liquidity: Post-NFO, units of the Groww Nifty India Defence ETF can be bought and sold like any other ETF, offering liquidity to investors who wish to exit.
Conclusion: Is Groww Nifty India Defence ETF FOF Right for You?
This ETF can be a smart choice for investors with a long-term horizon and those looking to gain from India’s defense sector growth. With increasing defense budgets, a focus on indigenization, and private sector participation, the defense sector is poised for sustained growth.
However, it is essential to remember that sector-specific funds can be volatile. The defense sector, in particular, is influenced by policy decisions, global events, and geopolitical risks. Therefore, investors should weigh their sector exposure and risk tolerance carefully before investing in this FOF.
Investors should also keep in mind that this is a passive fund, tracking an index. It doesn’t seek to outperform the index but rather aims to replicate its returns.
