India’s defence sector has emerged as an important investment theme, supported by rising government expenditure, domestic manufacturing, import substitution and growing defence exports.
A defence ETF in India allows investors to participate in this opportunity through a diversified basket of defence-related companies instead of selecting individual stocks. However, these ETFs remain concentrated thematic investments and may experience sharp volatility, especially when valuations are high.
Best Defence ETF in India
Detailed Comparison: Defence ETF in India
The Motilal Oswal Nifty India Defence ETF tracks the Nifty India Defence Total Return Index. It was allotted on August 21, 2024 and had assets under management of approximately ₹1,354.80 crore as of June 30, 2026. The AMC reported a tracking error of 0.10% for the stated measurement period and no exit load. It is the largest of the three ETFs considered here by AUM. That does not guarantee better returns, but a larger fund usually has a better chance of developing deeper secondary-market participation and more efficient creation and redemption activity. Strengths Largest AUM among the three A larger asset base can support more efficient fund operations and may attract stronger participation from market makers and investors. Low reported tracking error A tracking error of 0.10% indicates that the scheme historically followed its benchmark relatively closely during the disclosed measurement period. Weaknesses and risks Very high concentration Hindustan Aeronautics, Bharat Electronics, Bharat Forge and Solar Industries dominate the underlying index. The ETF contains several securities, but its performance is heavily influenced by a small number of companies. Expensive underlying index The index’s elevated price-to-earnings and price-to-book ratios leave limited room for operational disappointment. The Groww Nifty India Defence ETF also tracks the Nifty India Defence Total Return Index. It was allotted on October 8, 2024. The fund’s holdings closely resemble the Nifty India Defence Index because it seeks to replicate the benchmark. Strengths Very low disclosed tracking error The reported tracking error of 0.06% is strong. For a passive product, accurate benchmark replication is one of the most important indicators. Clean exposure to the Nifty India Defence Index Investors receive substantially the same underlying portfolio as other funds tracking the benchmark. Weaknesses and risks Smaller AUM than Motilal Oswal At the relevant reporting date, Groww’s AUM was substantially lower than Motilal Oswal’s. Smaller AUM is not inherently dangerous, but it can sometimes affect trading liquidity and operational efficiency. Higher reported base expense ratio Its 0.59% base expense ratio was higher than the corresponding published figures for the other two ETFs in this comparison. A difference of a few tenths of a percentage point may appear small over one year, but it compounds over longer holding periods. The Mirae Asset BSE India Defence ETF differs from the first two options because it tracks the BSE India Defence Total Return Index rather than the Nifty India Defence Index. The scheme was allotted on February 13, 2026. Strengths Broader portfolio construction Mirae Asset’s benchmark gives relatively lower weights to Hindustan Aeronautics and Bharat Electronics. It also includes diversified industrial companies such as Larsen & Toubro, Mahindra & Mahindra and Adani Enterprises. This reduces dependence on two or three dominant defence stocks. Lowest published base expense ratio At 0.29%, the fund had the lowest reported base expense ratio among the three schemes in this comparison. Weaknesses and risks Very short track record The ETF was launched in February 2026. Investors cannot yet evaluate how consistently it will track its benchmark across different market conditions. Smaller AUM An AUM of approximately ₹130 crore is adequate for operating an ETF, but investors should carefully inspect trading liquidity and bid-ask spreads. 1. Valuation Defence stocks may trade at high valuations after strong rallies. Avoid investing only because the sector has recently performed well. 2. Portfolio concentration Check how much of the ETF is invested in its largest companies. High concentration can increase volatility. 3. Government policies Defence companies depend heavily on government budgets, procurement policies and order approvals. 4. Order execution A large order book is valuable only when companies can complete projects on time and maintain profit margins. 5. Expense ratio Compare the annual cost charged by different defence ETFs. Lower expenses can improve long-term returns. The long-term direction of Indian defence manufacturing remains encouraging. Capital expenditure is increasing, domestic production is reaching new records and exports are becoming more meaningful. However, a good industry does not automatically make every investment attractive at every valuation.1. Motilal Oswal Nifty India Defence ETF
2. Groww Nifty India Defence ETF
3. Mirae Asset BSE India Defence ETF
Factors to Consider Before Investing
Conclusion