Cash isn't king! Radhika Gupta explains why sitting idle doesn't work in mutual funds

Time of India

4 days ago

Every time the market dips,
investors
applaud those sitting on piles of cash. But Edelweiss Mutual Fund follows a different playbook — keeping cash levels around 2–3%, and never breaching even 10%.
Radhika Gupta
, MD & CEO of
Edelweiss AMC
, believes equity fund managers are hired to pick stocks, not to time
markets
or predict geopolitics. Taking big cash calls, she warns, can be risky. 'If something looks expensive, shift within the universe,' she says.
Edited excerpts on a chat with Radhika Gupta on SIPs, cash calls and asset allocation.
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We saw how the market started falling from September and then recovered in the last 3 months. All this while
SIP
investors have stayed put and SIP inflows didn't fell that much.
Radhika Gupta:
It is a structural trend. People are growing up. You do not lose money. I had said this four months ago in the peak of all this pandemonium that the minimum return in SIP on Edelweiss Midcap Fund over 10 years is 9%. It is not a big deal. You just have to hang out. And SIPs are something people are beginning to develop structural faith in, because it is not a returns-focused product only. It is a savings and investment solution.
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One-two months of market correction does not make people stop their SIPs. It is a way for me to save as a salaried person and consistently invest in the market. And by the way, if the market falls, I get more units. Maybe our industry has done a good job of education. Some of us were screaming all day on social media and your platforms. Now it shows that people are actually listening to us. Imagine if people had stopped all those SIPs four months ago. The SIP has survived.
The frenzy in smallcaps is also coming back at the same time now.
Radhika Gupta:
I do not know what you mean by frenzy. But smallcap returns have certainly come back. I do not think smallcaps are super cheap anymore. We started the year on a very turbulent note, with so much global uncertainty and the pressure of domestic earnings. And then we also had a big geopolitical event. Now, tariff and geopolitical uncertainty has taken a pause. The market has digested that in some sense. What needs to come back now is earnings growth, which is what we will look forward to in the second half of the year.
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A lot of investors who were sitting on cash in between have now been suffering from
FOMO
. How do you deal with cash allocation?
Radhika Gupta:
We have had an institutional policy to not take cash calls in equity funds for the last 7-8 years. It gets very criticised in months where markets fall because people think, oh,
cash wala mahan hai
. But it is very, very, very hard to take cash calls because our fund managers, or at least the people we hire, are stock selection guys. They are sector selection guys. They do not have the ability to predict geopolitics. Most people do not have the ability to predict what world leaders are doing with tariffs overnight. And so, taking cash calls can be very dangerous. When do you cut and when do you re-enter, especially and so, we leave that to science. We think that we are okay if someone gives us less money because they want to take an asset allocation. We have a cash component of 2-3% but it will never touch 10% even.
Also read |
Staying invested and patient pays off for 'Dumber' investors against timing market: Radhika Gupta
That's right but some people shifted to cash because they found valuations to be very expensive in the peak of the bull market last year. So how do you deal with the valuation problem?
Radhika Gupta:
Then let the investor give you less money.
When we manage our midcap fund, we are managing a relative return fund. You are trying to beat the benchmark. When an investor gives you money, she has told you that I want midcap exposure. If she does not want midcap exposure, she will not give you money and she should not give you money. So, my job is to beat the midcap index. If I find valuations a challenge in defence, I should move to IT or wherever I find valuation attractive. So, within the universe, I move to baskets of less overpriced valuation. But I have got money to deploy in midcaps and not got money to sit on cash. That is the way we think of it.
So, for someone who has a moderate risk profile, what should be the ideal asset allocation at this point of time?
Radhika Gupta:
It should be a very middle path in nature - flexi or multicap in nature. So, we are of this belief that people tend to be very binary. They either like only mid and smallcaps or they shift to largecaps. When you are thinking decadally, you should think about wider representation of the economy and that becomes flexicap for conservative investors and multicap for aggressive investors. You actually have a mix of both paths.
That's because a lot of critical themes, hotels, hospitals, capital markets, capital goods of the decade are mid and smallcap leaders. And India is a strange country in the sense that our midcap index is based on ranks. It is not based on market cap. And structurally, the largecap index is designed for a few sectors. Banks because they are large and have high free float. And then there are energy and some IT companies. You will get a very concentrated exposure if you are only into largecaps.
And in terms of other asset classes?
Radhika Gupta:
People forgot fixed income over the last few years. So, you need to have fixed income exposure. Gold exposure is good. Also I believe people should have international fund exposure. Again, people tend to be a little return-chasing on that. But having the two major US and Chinese markets is usually a good idea.
Can you summarise the kind of lessons that we have learnt as an investor in the last few months?
Radhika Gupta:
We have learnt the same lessons we learn every time, which is to focus on asset allocation, do not forget fixed income. Do things that are simple and
dal chawal
kind of investing. (
Read more about dal chawal investing here
)
And in this social media age, do not FOMO your way to investing.