ET Alpha Wealth Summit 2.0: Radhika Gupta says financial products must solve real investor needs

Financial products should address genuine investor needs, particularly for tax-efficient income and low-risk returns, rather than be chosen simply because they are new or popular, according to Radhika Gupta, MD and CEO of Edelweiss Mutual Fund.Speaking at the ET Wealth Summit, Gupta said the need for income-oriented, tax-efficient investment options had become more pronounced since 2023, as investors in fixed-income products could be left with relatively lower returns after tax. She added specialised investment funds (SIFs) could help address this need by using the investment flexibility permitted under the regulatory framework.“A good financial product is not an ETF or a SIF or an MF; it is a target for a problem,” Gupta said, emphasising that investors should begin by identifying their financial requirements before selecting an investment product.Also Read | ET Alpha Wealth Summit 2.0: SIFs are Shahrukh Khan in portfolio says Radhika Gupta, Edelweiss Mutual FundGupta said the SIF category had attracted significant interest in its first year, with industry assets under management reaching around Rs 38,000 crore. Edelweiss Mutual Fund, she added, had become the largest SIF manager, with assets of approximately Rs 14,000 crore at the time of the discussion.She noted that interest was not limited to family offices and large corporate investors, with participation and conversations around SIFs also extending to investors in tier-II and tier-III cities.According to Gupta, the appeal of SIFs lies partly in how the products package investment strategies that had existed in other structures, including Category III alternative investment funds (AIFs), portfolio management services (PMS) and certain mutual fund categories. Earlier, access thresholds and taxation could make some of these strategies less attractive or accessible to a broader set of investors.However, she cautioned that SIFs should not be viewed as products that automatically deliver strong returns in rising markets while protecting capital during declines.“You can’t have everything in one financial product,” Gupta said, stressing the importance of communicating the intended investment horizon, potential risks and the possibility of periods of negative performance.She cited income-oriented hybrid long-short strategies as an example, saying investors should not expect them to outperform equity markets during every rally or behave like liquid funds under all market conditions. Investors, she said, must understand each scheme’s objective and risk profile before investing.Gupta said investors should avoid comparing SIFs solely on the basis of performance rankings, as the category includes strategies with materially different risk-return profiles.Derivatives, for instance, can be used for arbitrage, hedging through strategies such as covered calls, or taking directional market positions. These approaches can produce very different outcomes, even within the broader SIF category, she mentioned.Radhika Gupta also highlighted the need for fund managers to maintain consistent investment processes as assets grow. Strategies that are easier to execute in smaller funds may become more difficult to scale, making investment talent and execution key challenges for the industry.Gupta added that investors need better education about derivatives and the risks associated with individual strategies. She also pointed out that SIFs are not permitted to use leverage, distinguishing them from leveraged positions that retail traders may take in the futures and options market.Tax treatment is another factor investors should consider when evaluating SIFs, Gupta said. Equity SIFs are taxed broadly like equity mutual funds, while debt SIFs follow the tax treatment applicable to debt mutual funds. Hybrid SIFs have a different structure, with taxation linked to their treatment as interval funds or listed securities.She said the structure and tax treatment of an investment can materially affect the returns an investor ultimately retains. However, investors should assess a product in the context of their portfolios rather than choose it simply because its tax treatment appears attractive.Gupta advocated what she called “purposeful investing” rather than buying every new product that enters the market. Investors and advisers should identify the role each investment is expected to play in a portfolio and determine whether an SIF can replace or complement an existing allocation.For example, an investor with an allocation intended for an 18-month horizon could evaluate whether a hybrid SIF fits that purpose. Similarly, investors with existing mid-cap or small-cap exposure could assess whether shifting part of that allocation to an SIF would be appropriate. Such decisions, she said, should depend on the product’s strategy and the investor’s overall asset allocation.Also Read | ET Alpha Wealth Summit 2.0: REITs can diversify portfolios, but total returns matter, says Ramesh NairShe added…