Radhika Gupta’s ‘dal-chawal’ funds: What are these and why you should invest according to the Edelweiss chief. Explained

Edelweiss MD and CEO Radhika Gupta has once again taken to social media to guide followers on safely investing in mutual funds. In a series of posts on X (formerly known as Twitter), she advised followers to ensure their portfolios are “80 per cent” comprised of “dal-chawal funds”.

Sharing an example, Gupta said she recently saw the portfolio of an investor who had invested ₹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!” she stated.

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, 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.

Why invest in dal-chawal funds?

Well, as per Gupta’s advice, investing in broad-based funds ensures you’re covered through various market cycles and not taking hits because of over-allocation in one or two narrow sectors that may be on a downward spiral.

In short, 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 loss.

Sector funds: Know More About The ‘Flavour of the Season’

Further, in another series of posts on X, Gupta also shared a few facts about sector rotation “since sector funds are the flavour of the season”.

Sharing graphs to elucidate her points, she noted that narrow sector funds saw returns in line with the market and would “rarely” beat it. Further on specific sector funds, Gupta noted that these have cycles — case in point: broad funds aggressively cycle between funds because prediction of the down cycles is difficult and sometimes counterintuitive.

Here’s what she shared:

1. 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.

2. In the medium term sectors do show cycles. So there is alpha to be made if you can get the entry and exit right. Hard problem, given defence and manufacturing funds are launched today and not bottom of the cycle categories. Exit calls are also rare.

3. Traditional flexicap and multicap funds do not do aggressive sector rotation. My suspicion – 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 (counter intuitive).

Gupta also promised to share more insights on sectoral funds soon.