Radhika Gupta, the Managing Director and CEO of Edelweiss, recently shared valuable insights for mutual fund investors through a series of posts on social media. Emphasizing on the importance of stable and diversified investment strategies, she recommended that investors allocate a significant portion of their portfolios to what she terms "dal-chawal" funds. According to Gupta, these funds should constitute approximately 80% of an investor's portfolio.
In her posts, Gupta cautioned against the risks associated with over-reliance on narrow, theme-based investments. She highlighted the volatility and potential pitfalls of such strategies, suggesting instead that investors focus on broader, all-weather mutual funds which she calls “dal-chawal” funds.
When it comes to investing, the allure of quick, high returns often draws individuals towards narrow, high-risk investments. However, seasoned investors like Radhika Gupta, MD and CEO of Edelweiss, advocate for what she calls 'dal-chawal' funds—broad-based, reliable mutual funds that provide steady growth over time.
High-risk investments often come with the promise of substantial returns in a short period. This potential for rapid wealth can be incredibly tempting, especially in a culture that often celebrates big wins and fast success. Behavioral finance studies indicate that investors are influenced by cognitive biases such as overconfidence and the fear of missing out (FOMO). Overconfidence leads individuals to overestimate their ability to predict market movements, while FOMO drives them to follow trends without fully understanding the risks involved.
The media plays a significant role in amplifying this allure. Stories of investors striking it rich with tech stocks or cryptocurrencies make headlines, creating a skewed perception of how frequently these success stories occur. As a result, many people allocate a significant portion of their portfolios to high-risk, narrow investments, hoping to replicate these outcomes. However, they often overlook the fact that these investments can be highly volatile and prone to significant losses.
In contrast, 'dal-chawal' funds represent the staple, dependable portion of an investment portfolio. Much like the humble dal and rice in an Indian meal, these funds provide essential financial nutrition. They encompass broad-based, diversified investments that span various sectors and asset classes, thereby mitigating risk and offering consistent returns.
Radhika Gupta emphasizes the importance of these all-weather funds for a reason. They are designed to perform well across different market cycles, providing stability and steady growth. Unlike narrow, theme-based funds, which might excel in a particular market environment but flounder in others, 'dal-chawal' funds ensure that an investor’s portfolio remains resilient against market fluctuations.
Investing in 'dal-chawal' funds not only promotes financial stability but also enhances mental well-being. High-risk investments can lead to significant stress and anxiety due to their volatile nature. The constant monitoring of market movements and the emotional rollercoaster of rapid gains and losses can take a toll on an investor’s mental health. This stress is often exacerbated during market downturns, leading to poor decision-making driven by panic rather than rational analysis.
On the other hand, a portfolio anchored by broad-based, stable investments offers peace of mind. Knowing that the majority of one's investments are in reliable, diversified funds reduces the need for constant vigilance and emotional upheaval. This stability allows investors to maintain a long-term perspective, focusing on gradual wealth accumulation rather than short-term gains.
To reap the psychological and financial benefits of 'dal-chawal' investments, it is essential to build a balanced portfolio. Gupta suggests that around 80% of a portfolio should consist of these reliable, diversified funds. This core can include hybrid funds, diversified equity funds, and both active and passive funds that span a range of sectors. The remaining 20% can be allocated to more speculative, high-risk investments for those who have a higher risk tolerance and the capacity to absorb potential losses.
