During a period of volatile markets influenced by the tariff war initiated by US President Donald Trump, the cash holding of equity mutual fund schemes has continued to remain high.
According to a study by Fisdom, the cash holding of equity schemes in Axis MF and Motilal Oswal MF saw an increase last month. Axis MF’s cash holding jumped 10 percent to ₹17,584 crore from ₹16,002 crore in January, while Motilal Oswal MF’s cash holding increased by 5 percent to ₹10,128 crore from ₹9,628 crore.
The primary purpose of holding cash in equity mutual fund schemes is to support redemptions or buy stocks later if the fund manager believes that current market valuations are high and may decrease in the future. Typically, the cash level of an equity mutual fund is around 5 percent, but it can vary depending on the fund manager’s view on market valuation and redemption pressure.
In February, the cash holding of Axis MF’s equity schemes increased by 10.4 percent, while its equity assets decreased to ₹1.55 lakh crore from ₹1.70 lakh crore in January. Similarly, Motilal Oswal MF saw its cash holding rise to 13.4 percent of the equity AUM last month, with the equity AUM dropping to ₹65,601 crore from ₹70,917 crore in January.
Other mutual fund houses such as WhiteOak Capital, Baroda BNP Paribas, Bandhan MF, Helios MF, and Bajaj FInserv MF also reported an increase in their cash holdings.
Overall, redemptions in equity schemes of the mutual fund industry slightly decreased to ₹25,126 crore last month as investors chose to hold onto their investments rather than sell at a loss. The benchmark Sensex declined by 6 percent to 73,198 points in February, following a 1 percent dip in January.
Nirav Karkera, Head of Research at Fisdom, noted that many fund managers have been building strategic cash reserves amid heightened volatility and a cyclical downturn. These funds are expected to start deploying capital selectively into emerging opportunities across various segments of the listed universe. While market conditions may worsen before improving, there are currently attractive investment opportunities from both a valuation and growth perspective.
Karkera believes that the potential for upside exceeds the risks of further downside at this stage, despite the challenges posed by global risks. The outlook remains uncertain, but opportunities for growth and value creation are present in the market.
