The cash holding of equity mutual fund schemes continue to remain high as the markets turned volatile, influenced by the tariff war kicked off by US President Donald Trump.
The equity schemes cash holding of Axis MF and Motilal Oswal MF jumped 10 per cent and five per cent to ₹17,584 crore and ₹10,128 crore last month against ₹16,002 crore and ₹9,628 crore in January, according to a study by Fisdom.
The purpose of holding cash is to support redemptions, or buy stocks later if the fund manager anticipates current market valuations to be high and expects them to go down. Typical cash level of an equity mutual fund is about 5 per cent. However, depending on the fund manager’s view on market valuation and redemption pressure the cash levels can vary.
The cash holding of equity schemes of Axis MF increased 10.4 per cent last month from 8.6 per cent in January while its equity asset dipped to ₹1.55 lakh crore against ₹1.70 lakh crore in the same period, according to a Fisdom research.
Similarly, Motilal Oswal MF cash holding was 13.4 per cent of the equity AUM last month against 12 per cent in January AUM. The equity AUM of the fund house was down at ₹65,601 crore against ₹70,917 crore in January.
Other MFs including WhiteOak Capital, Baroda BNP Paribas, Bandhan MF, Helios MF and Bajaj FInserv MF reported an increase in their cash holding.
Overall, the redemption in equity schemes of the mutual fund industry was down marginally at ₹25,126 crore last month against ₹26,942 crore as investors preferred to hold on to their investment rather than sell it at a loss.
The benchmark Sensex was down 6 per cent at 73,198 against 77,506 points in February. The same index in January dipped one per cent to 77,500 points against 78,507 points.
Nirav Karkera, Head of Research, Fisdom, said amid heightened volatility and a cyclical downturn, many fund managers have been building strategic cash reserves. These funds are expected to begin deploying capital selectively into opportunities emerging across various segments of the listed universe.
While, at an aggregate level, conditions may deteriorate further before improving, markets currently present a broad range of attractive investment opportunities on both a valuation and growth perspective, he added.
“Though timing a positive inflection remains challenging, we believe the potential for upside outweighs the risks of further downside at this stage. That said, spillover effects from global risks continue to pose key challenges to the outlook,” he said.
