The ad had a fighter jet on it. June 2024, a defence index fund NFO, and within one week three separate clients forwarded me the same creative with the same question: “should we take some of this?” One of them wanted to put in ₹2 lakh. We passed on it — all three times — and I want to walk through the reasoning, because the reasoning matters more than how it turned out.
What the ad was actually selling
Not defence stocks. Recent defence returns. By mid-2024 the Nifty India Defence index had roughly tripled over the preceding year — order books, indigenisation policy, a genuine story underneath. The NFO existed because of that chart. AMCs launch thematic NFOs when a theme is hot, for the same reason shops stock umbrellas in July: that's when they sell. Sectoral and thematic funds hoovered up more new money in 2024 than any other equity category, a huge share of it through NFOs — which tells you the launch calendar follows investor mood, not investor opportunity.
So the honest label on that ad wasn't “participate in India's defence story.” It was “buy, at all-time-high valuations, the thing that just went up 3x.” Nobody runs that ad. It doesn't sell.
The ₹10 NAV trick, since it still works
Every NFO pitch leans on the ₹10 unit price, and every year it keeps working, so it keeps getting used: ₹10 sounds “cheap” next to an established fund's NAV of ₹450. This is arithmetic sleight of hand. ₹1 lakh into a ₹10 NFO buys 10,000 units; the same ₹1 lakh into a ₹450 fund buys 222 units — and both positions are worth exactly ₹1 lakh, exposed to exactly whatever the underlying stocks do next. NAV is a denominator. A low one isn't a discount, any more than cutting a pizza into more slices gives you more pizza. When a pitch needs you to not understand that, everything else in the pitch inherits the smell.
The reason we actually passed
Here's the part that would've been true even if defence had doubled again. None of those three clients had a “defence-shaped” hole in their plan. The client with ₹2 lakh ready had a 2029 house-deposit goal and a flexi cap SIP already holding meaningful positions in the same defence names — a thematic fund would've concentrated what his portfolio already owned, on a five-year clock too short for a sector that lives and dies on order-flow cycles. An NFO on top of that adds a fund with no track record, no history through a downcycle, and usually higher expenses than an established diversified fund. Our mutual funds page lists “recommend NFOs blindly” under things we don't do, and this is what that line costs in practice: three awkward conversations where the exciting answer was no.
What happened next — and why it's not my proof
From its July 2024 peak, the defence index fell roughly a third by early 2025. Investors who entered through that NFO wave spent months underwater on day one money. Then, through mid-2025, the sector rebounded hard on fresh geopolitical tailwinds — so a patient NFO investor may well be fine today, and I won't pretend otherwise.
Which is exactly why the drawdown isn't my argument. If we'd passed and the sector had kept climbing, passing would still have been right, for the same three reasons: no goal it served, concentration the portfolios didn't need, and a fund with no history sold on a chart's recent past. A good decision isn't one that's followed by a fall. It's one you'd repeat with the same information — and the next time a fighter jet, an EV, or an AI theme shows up in your WhatsApp with a ₹10 NAV, the information will be the same.
This is an educational account of our reasoning on a category of fund launches, not advice on any specific scheme, and sector movements described are approximate. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Past performance is not indicative of future returns.