HDFC MF halts new SIP registrations in defence fund amid valuation concerns

HDFC Mutual Fund will stop registering new systematic investment plans (SIPs) in its HDFC Defence Fund from July 22, 2024, citing valuation concerns. The scheme had stopped accepting inflows through the lump sum route soon after its launch in June 2023.

What is HDFC Defence Fund?

It is a sectoral mutual fund scheme aimed at providing long-term capital appreciation by investing in equity and equity related securities of companies in defence and allied sectors. The scheme is benchmarked against Nifty India Defence Index TRI and is managed by Abhishek Poddar and Dhruv Muchhal.

The fund has Rs 3,233 crore in assets under management (AUM) and has delivered a point-to-point return of 130 per cent since inception in 2023. Investors who started a Rs 5,000 SIP in the scheme would have amassed around Rs 1.04 lakh. The benchmark Nifty India Defence Total Return Index has also recorded similar returns.

Why does the fund limit inflows?

Fund houses restrict inflows into a scheme when the scope for deploying fresh money shrinks due to increased valuations or other reasons. In the recent past, several small-cap funds have imposed restrictions on fresh investments. However, HDFC Defence Fund is perhaps the first example of a scheme that has put an end to SIP registrations.

Why has HDFC stopped production of new SIPs?

HDFC Mutual Fund is facing challenges in deploying funds due to valuation concerns. As a result, it has capped SIP investments in the sector fund at Rs 10,000 per month. Citing the suspension of one-time investments last year and restrictions on systematic transactions, HDFC Mutual Fund on Tuesday announced in a notification-cum-addendum that new SIP registrations in the Defence Fund will not be accepted from July 22.

However, there will be no restrictions on redemptions/switch-outs/STP-outs in the scheme. All other terms and conditions as mentioned in the scheme information document (SID)/key information memorandum (KIM) of the scheme remain unchanged, HDFC Mutual Fund said.

HDFC Defence Fund has 21 stocks in its portfolio. More than half of the AUM is invested in three defence companies, Hindustan Aeronautics, Bharat Electronics and Astra Microwave Products, while the remaining 18 account for 50 percent. Many of the PSU stocks across sectors are trading at all-time highs.

First print: Jul 10, 2024 | 5:37 PM IST