Edelweiss' Radhika Gupta's "Dal Chawal " Advice For Mutual Fund Investors

Radhika Gupta, the managing director (MD) and chief executive officer (CEO) of Edelweiss, has a piece of advice for mutual fund investors - allocate 80% of their portfolio should be “dal-chawal" funds. 

Ms Gupta, known for her propensity for advocating diversification of investments, explained in a series of tweets on social media platform X (formerly Twitter) why investors should not "narrow" their investments in select sectors in the prevailing situation and instead focus on broad-based funds. 

The “dal-chawal" funds are all-season funds. MS Gupta explained they are "broad-based funds that are all weather and span a range of sectors." 

“I recently saw a portfolio of an investor with a 27,000 monthly SIP. Across 31 funds. 15 were narrow sectoral ones. 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!” Ms Gupta wrote on X.

Ms Gupta underscored sector funds rarely beat the market and in the long run, their return is similar to that of the market. 

Sectoral funds do well in cycles, but it is difficult to predict market cycles and sectoral tailwinds. For example, the technology sector did well during times of pandemic but has been struggling in recent times. Banks, too, have not performed well in the recent elevated rate regime. 

In a separate thread on X, Ms Gupta explained how sector rotation, when done right, can generate solid alpha. 

“Traditionally business cycles funds have run with a more predictive approach trying to forecast cycles and sector links. Our belief is prediction is getting harder and harder. Why not solve this problem using factors instead?” Ms Gupta wrote.

Ms Gupta emphasised combining momentum with fundamentals can ensure investors do not wait for something cheap. This she explained by giving an example of PSU banks, which have been cheap since 2014, but momentum is more recent.