Best Defence ETFs in India 2025
For many countries, having a sound defence infrastructure is vital to protect the country in various situations. Companies that produce weapon systems, defence vehicles, military aircraft, ships, and drones are part of the defence sector. An exchange-traded fund (ETF) is an instrument that tracks the performance of a sector by investing in the shares of companies that make up the sector. An ETF aims to replicate the returns of the underlying sector. Through a defence ETF, one can invest in the defence sector seamlessly. In this article, we will take a look at the best defence ETFs you can add to your portfolio.
How Do Defence ETFs Work?
Before we take a look at the best defence ETFs, let’s understand what a defence ETF is and its components.
An ETF is an instrument that aims to generate identical returns to a particular index, sector, or commodity. The ETF tries to achieve this by investing in the components of a sector or index in a similar weightage.
The defence sector is made up of companies involved in the production of weapons and missile systems. It also includes aerospace companies that manufacture airplanes, drone companies, and shipbuilding companies.
A defence ETF invests in the shares of these companies and aims to replicate the performance of the defence sector. Defence ETFs are typically benchmarked against the Nifty India Defence Index.
Defence ETFs invest in the shares of companies that make up this index in a similar weightage to that which they hold in the index. As a result, defence ETFs can closely replicate the performance of the defence sector.
Best Defence ETFs to Invest in India 2025
Let’s take a look at the top defence ETFs in India.
(Please note: The data is from June 9, 2025)
Groww Nifty India Defence ETF
- Returns Since Inception: 29.46%
- Assets Under Management (AUM): ₹106.95 crore
- Expense Ratio: 0.43%
- Tracking Error: 0.11%
- 52-week High: ₹93.89
- 52-week Low: ₹49.83
Motilal Oswal Nifty India Defence ETF
- 3Y Annualised Returns: 24.20%
- Assets Under Management (AUM): ₹203 crore
- Expense Ratio: 0.41%
- Tracking Error: 0.28%
- 52-week High: ₹101.98
- 52-week Low: ₹55.21
Benefits of Investing in a Defence ETF
Now that we’ve looked at the top defence ETFs in India, let’s understand some of the key benefits of investing in a defence ETF.
Strategic Investment Sector
The defence sector in India can be a strategic bet for investors. A defence ETF can be beneficial for investors since the sector is aligned with government policies.
The government’s policies have drawn significant investment to support and boost growth in the defence sector. Moreover, rising geopolitical tensions have highlighted the importance of the defence sector in the country.
Potential for Long-Term Growth
Several companies in the defence sector have seen significant growth in the past few years. Investing in the defence sector can be suitable for the long term, allowing investors to benefit from the growth and development in the sector.
In recent years, government spending on defence has increased, which has helped the defence sector grow. With the trend expected to continue, investors may see considerable growth in the longer run.
Diversification in the Defence Sector
A defence ETF is helpful as it allows investors to diversify across the defence sector. Since a defence ETF invests in the stocks of companies involved in various aspects of the defence industry, investors can have exposure to several companies through a single instrument.
Lower Cost and Passive Management
A defence ETF is advantageous since it offers investors a lower cost compared to investing in individual stocks. Additionally, an ETF is managed passively, which means it tracks the defence sector and makes investment decisions to replicate the underlying index.
Being passively managed, investors do not need to worry about investment decisions and can expect returns identical to the underlying index.
Risks & Considerations
Although the defence sector can be a solid avenue for investment, there are some things to consider before investing in a defence ETF -
Sectoral Concentration
A defence ETF may offer investors diversification across the defence sector. However, it also results in sectoral concentration.
If your portfolio is concentrated in one sector, you are exposed to higher risks in case the sector does not perform well. It is wise to diversify across sectors and investors to mitigate risk.
Policy Dependency
The defence sector is greatly influenced by the government’s policies. Being dependent on favourable government policies, a change in sentiment can hamper the performance of the defence sector.
Additionally, the defence sector is also reliant on procurement, imports, and exports. Policy changes that impact the procurement cycle can have a negative impact on the sector.
Geopolitical Tensions and Uncertainties
Similar to other sectoral ETFs, a defence ETF is impacted by geopolitical tensions and uncertainties. Unprecedented events such as wars or recessions can impact the performance of the overall market.
Trade restrictions and taxes on defence industries can also result in underperformance in the sector.
Who Should Consider Investing in a Defence ETF?
A defence ETF can be a viable investment option for investors who want to stay invested for the medium to long term. The country’s defence sector industry is steadily moving towards self-reliance. If an investor is bullish on the defence sector and looking for a thematic play, a defence ETF can be a suitable way to invest in defence stocks with ease.