Edelweiss MD and CEO Radhika Gupta shared tips for safely investing in mutual funds on social media where she advised followers to ensure 80% of their portfolios consist of ‘dal-chawal’ funds.
Sharing an example, Gupta mentioned she recently saw the portfolio of an investor who had invested Rs 27,000 worth of monthly SIP across 31 funds, of which 15 were narrow sectoral ones, cautioning it as “a danger in these times.”
“A danger in these times is to fill your portfolio with narrow ideas that ideally are satellite allocation. Remember, 80% of the portfolio should be ‘dal-chawal’ funds!” said Gupta.
When a follower asked what such funds would comprise, she added, “I mean stuff that is not narrow themes. Hybrid funds, diversified equity funds, active or passive, it doesn’t matter. The point is broad-based, all-weather stuff.”
What’s a dal-chawal fund?
According to Gupta, broad-based mutual funds that are ‘all-weather’ and ‘span a range of sectors’ would be ‘dal-chawal’ funds.
As an example, she pointed to balanced advantage and aggressive hybrid type funds, including flexi, multi, large and mid, and broad-based 250-500 index funds, calling these “forever funds.”
“Active or passive doesn’t matter — the point is not a narrow theme-based fund that works in one cycle and not in the next,” she added.
Should you invest in dal-chawal funds?
As per Gupta, investing in broad-based funds ensures you’re covered through various market cycles and do not take hits because of over-allocation in one or two narrow sectors that may be on a downward spiral.
In short, it refers to the old adage—don’t put all of your eggs in one basket. A diversified, broad investment portfolio ensures that you don’t sink if your investment does and that your investments would ideally balance each other out in times of gains and losses.
In another series of posts on X, Gupta shared a few facts about sector rotation “since sector funds are the flavour of the season.” Sharing graphs to explain her points, she noted that narrow sector funds saw returns in line with the market and would “rarely” beat it.
On specific sector funds, Gupta noted that these have cycles. Broad funds aggressively move between down cycles and up cycles, but prediction of the down cycles is difficult and sometimes counterintuitive.
Here’s what she shared:
In the long term, the returns of most sectors are in line with market returns. So, a buy-and-hold approach to a sector fund will rarely beat the market.
In the medium term, sectors do show cycles. There is profit to be made if you can get the entry and exit right. This is hard because funds are often launched at the peak rather than the bottom of cycles.
Traditional flexicap and multicap funds do not do aggressive sector rotation. My suspicion is because prediction of cycles and sector outcomes is hard to do. Banks have not done well when rates have risen recently (counter to traditional wisdom). Tech did well in recessionary COVID times (counterintuitive).
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)
