What's a dal-chawal' fund and why should it make up 80% of your portfolio?

The term "dal chawal funds" was coined by Radhika Gupta, CEO of Edelweiss Mutual Fund, in response to the numerous investment scams that have plagued the Indian stock market.

Edelweiss Mutual Fund's managing director and chief executive officer (CEO), Radhika Gupta, earlier this week batted for 'dal chawal'investing'( ordinary investing) as opposed to chasing unrealistic gains offered by potential fraudsters in the market waiting to entrap retail investors.

The Assam police have arrested 38 people from different parts of the state in less than a week for their alleged involvement in an online trading scam believed to be worth at least Rs 2,200 crore.The scam, which ran for almost three years, entailed investing money collected from clients in “shares” with a promise to double the investment in 60 days.

 

An investing app was floated by 22-year-old Bishal Phukan of Dibrugarh and his Guwahati-based associate Swapnanil Das. The online traders initially returned small amounts along with 30–50% interest but stopped after clients, lured by the profit, began investing larger sums.Phukan and Das also attracted attention after buying acres of land and high-end cars, apart from posting photos from foreign locales on social media platforms.

Phukan, who allegedly used his luxurious lifestyle to lure investors, had established four fake companies, invested in Assamese cinema, and acquired several properties as part of the scheme, police said.

The Edelweiss Mutual Fund head focused on the importance of investors understanding that there are no quick ways to earn money, and referring to the Assam fraud case, she said that in case a quick money way is being advertised with expensive cars, it will lead to a “fatal crash.” 

“2,200 crores of fraud is heartbreaking stuff. How many reminders do we need that there is no fast route to riches… and usually if such a route is advertised with fancy cars in tow… it leads to fatal crashes,” said Gupta in her post on platform X.

What’s a dal-chawal fund?

The term "dal chawal funds" was coined by Radhika Gupta, CEO of Edelweiss Mutual Fund, in response to the numerous investment scams that have plagued the Indian market. The term is a metaphor for a simple, reliable, and consistent investment strategy, much like the staple Indian meal of dal and rice.   

According to Gupta, broad-based mutual funds that are “all-weather” and “span a range of sectors” would be ‘dal-chawal’ funds. In a series of posts on X, formerly Twitter, she  has advised followers to ensure “80 per cent” of their portfolios comprise “dal-chawal funds.”

Key Characteristics of Dal Chawal Funds:

• Diversified Portfolio: These funds typically invest across a wide range of sectors and asset classes, reducing risk and ensuring steady returns.   
• Long-Term Focus: Dal chawal funds are designed for long-term investors who are not seeking quick profits.   
• Low Volatility: They are less volatile compared to other investment options, making them suitable for risk-averse investors.   
• Consistent Returns: Dal chawal funds aim to provide consistent returns over time, even during market downturns.   

Examples of Dal Chawal Funds:

• Balanced Funds: These funds invest in both equity and debt instruments, providing a mix of growth and stability.   
• Multi-Cap Funds: These funds invest across different market capitalization segments, offering diversification and potential for growth.   
• Large-Cap Funds: These funds invest in large, well-established companies, providing relatively stable returns.   
• Mid-Cap Funds: These funds invest in mid-sized companies, offering higher growth potential but also higher risk.   

As an example, Gupta 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.

Gupta shared an example, and said she recently saw the portfolio of an investor who had invested Rs 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.

Investing in broad-based funds ensures you're covered through various market cycles and do not take hits because of over-allocation in one or two narrow sectors that may be on a downward spiral.

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

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.

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.

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.Tech did well in recessionary covid times (counter intuitive)."

Why Choose Dal Chawal Funds?

Safety and Reliability: Dal chawal funds are considered a safe and reliable investment option, especially for those who are new to investing or who prefer a low-risk approach.

   

Consistency: These funds aim to provide consistent returns over the long term, reducing the impact of market fluctuations.   

Diversification: By investing in a diversified portfolio, dal chawal funds can help mitigate risk and improve overall returns.   

Ease of Investment: These funds are typically easy to invest in and manage, making them accessible to a wide range of investors.