Edelweiss CEO Radhika Gupta explains ‘dal-chawal’ funds and why you must invest

Radhika Gupta said that broad-based mutual funds that are “all-weather” and “span a range of sectors” are ‘dal-chawal’ funds.

Radhika Gupta- Edelweiss MD and CEO- shared advice for those investing in mutual funds. In a series of posts on X (formerly Twitter), she said that those investing should ensure “80 per cent” of their portfolios comprise “dal-chawal funds.”

Edelweiss CEO Radhika Gupta shared how you can safely invest in mutual funds

“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 said in response to a question asked by a follower, “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 are dal- chawal funds?

Radhika Gupta said that broad-based mutual funds that are “all-weather” and “span a range of sectors” are ‘dal-chawal’ funds. She said, “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."

Why should you invest in dal-chawal funds?

Radhika Gupta said that investing in broad-based funds ensures you're covered through various market cycles. Sharing a few facts about sector rotation, she said that "sector funds are the flavour of the season.”

She added, “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. 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.”

She explained, “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).”