What’s a dal chawal mutual fund? Radhika Gupta of Edelweiss Mutual Fund explains

Comparing balanced advantage and aggressive hybrid mutual funds to dal-chawal, Edelweiss Mutual Fund Radhika Gupta on Thursday suggested investors to not invest in narrow theme based funds that work in one cycle and not in the next.

She posted on X: "What’s a dal chawal fund? Broad based funds that are all weather and span a range of sectors. Balanced advantage and aggressive hybrid types. Flexi, multi, large and mid, broad based 250-500 index types. 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 mentioned that she came across a portfolio in which a monthly SIP of Rs 27,000 was spread across 31 funds. Out of 31 funds, 15 funds were narrow sectoral ones.

She said, “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!”

Radhika Gupta also mentioned a few interesting facts about sector rotation. She suggested that 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.

She further explained: “A few interesting facts about sector rotation, since sector funds are the flavour of the season.

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)."

A user commented on the post, “Mam, you could have coined “Thali Meals fund” which has little bit of everything and dal chawl /roti (large caps) as major portion.

Another user commented on why active and passive don’t matter. He said, “Why active and passive don't matter? Once you decide to take dal chawal - it's always better to have it home cooked rather than getting through zomato and paying an extra price with uncertainty on quality !”.