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HDFC Mutual Fund, one of the largest fund houses, has discontinued lumpsum investments in its recently-launched HDFC Defence Fund due to lack of investment opportunity.
The scheme was launched on May 19 and the new fund offer closed on May 30.
No new SIPs
Fresh lumpsum investments, including switch-ins, will not be allowed. However, new monthly Systematic Investment Plan registrations will be allowed up to ₹10,000 per investor. The fund will not register any new Systematic Transfers (STPs) into the scheme.
However, systematic transactions registered before Monday will continue to be processed. Additionally, there will be no restrictions on redemptions for investors who wish to exit their positions.
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.
The fund house has restricted subscriptions in the scheme due to limited number of defence sector stocks available for investment and protect existing investors.
Unique problem for thematic funds
This problem is unique to thematic funds which makes investment based on specific ideas without studying the market, said Gaurav Singh, a mutual fund investor.
“One wonders, how can one of the oldest fund houses come with such a narrow theme even without accessing the investment opportunity. Moreover, why did the regulator SEBI give permission for this fund?,” he asked.
The HDFC Defence Fund is benchmarked to the Nifty India Defence index which itself has only 13 stocks. Most of the defence sector stocks have rallied substantially. The scheme had a universe of 21 stocks, many of which are mid- and small-sized companies.
Stocks sizzle
The average return from the top 10 stocks of the Nifty Defence index was 91 per cent with three stocks delivering over 100 per cent returns — Mazagon Dock (275 per cent), Data Patterns (147 per cent), and Garden Reach (105 per cent).
Data Patterns, a Defence and Aerospace electronics solutions provider, closed at ₹1,743 on Monday. The company registered a revenue of ₹185 crore and net profit of ₹55 crore in March quarter, though it has net profit margin of 30 per cent.
Similarly, Garden Reach Shipbuilders revenue stood at ₹601 crore and net profit was ₹55 crore in March quarter. The company’s share jumped 11 per cent to ₹565 on Monday.
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