Diversified equity funds are akin to Gujarati thalis, they have a bit of everything with each item working towards a common goal
22-Aug-2015 •Saurin Parikh
Juice, Salads, Khichdi, Rotis, Different rotis, One more variety of rotis, Puris, Vegetables, More vegetables, Even more vegetables, Sweets, Sweeter sweets, Diabetes-inducing sweets, Side-dish, Side-dish on the side of side-dish, Papad, Rice, Daal, Curd, Jiggery, Pickle, Butter milk.
Behold the Gujarati thali. For those unaware, the Gujarati thali is a single serving that comprises an assortment of food items. It is one dish, but a big one at that. The dish comes with several bowls and once the entire menu is laid out on it, there's seldom any space left to give away the colour of the dish.
The best thing about having a Gujarati thali is obviously the wide variety of delicacies that you get to eat. There are so many things in front of you; you get confused about what to start with. But that's a good thing. No consumer has ever complained about being spoilt for choice, and this is one place where you definitely won't.
Apart from the wide variety it gives, the Gujarati thali is also said to be very healthy because of the options it provides. Sure, naysayers would say that the sweets are not healthy, but they don't harm you because you end up eating only a bit of everything. Any one single item won't have an adverse effect on your health, but all of them put together will only do you good.
The same way diversified equity funds do you good. We recommend diversified equity funds as the ideal long-term investment option for the same reasons - a variety of stocks working for you, without allowing any one to have a major adverse effect on the returns generated. The stocks in the portfolio of a diversified equity fund work in tandem. The fund manager can pull money out of any sector that's not doing well and at the same time, invest in a sector that shows bright prospects. During a bull run, most sectors are doing well and a diversified fund is best placed to capitalise on them and generate returns. And in the event of a bear phase, there will be some sectors that will fall more than the others, which allows the diversified fund to cushion the fall.
This is exactly what a thematic or sectoral fund can't do. Investing in a thematic or sectoral fund that comes with a constrained mandate is like having only the sweets from the aforementioned Gujarati thali. It'll feel great momentarily, but the long-term effects will only be harmful. Sure, a diversified fund feels pallid as compared to a thematic fund.
But it is always better to have a wide variety of things, with each contributing towards the overall outcome.