Mutual funds
Cash levels within equity mutual funds have seen an uptick in recent months amid escalating valuations. According to data from Fisdom Research quoted by Business Line, the total cash reserves held by equity mutual funds surged to ₹1.34 lakh crore by the end of April, marking a 22% increase from the end of December last year.
During this period, cash as a proportion of total equity assets rose by 37 basis points to reach 5.42%.
Among the 451 schemes analyzed, 24 had cash holdings exceeding ₹1,000 crore each. Furthermore, 51 schemes held cash exceeding 10% of their assets, with 131 schemes having cash holdings surpassing 5%, as reported by BL.
The Parag Parikh Flexi Cap Fund held the highest cash amounting to ₹9,457 crore, which accounted for 14.8% of its assets. Other funds such as HDFC Flexi Cap Mutual Funds, ICICI Pru Bluechip, SBI Contra, HDFC Mid-Cap Opportunities, and ICICI Pru Value Discovery also had cash holdings exceeding ₹5,000 crore each.
These mutual fund schemes have all augmented their cash allocations over the past four months.
The Nifty 50 was trading at 20.6 times its FY25 estimated earnings per share and had climbed 4% in the four months leading up to April. Additionally, the market cap to GDP ratio stood at 132% by the end of April, significantly higher than the long-term average of 85%.
Regarding cash calls, this strategy deviates from the traditional principle of remaining fully invested at all times. However, it is employed to either mitigate downside risks during market downturns or to avoid purchasing stocks at inflated prices.
While most equity schemes typically refrain from actively making cash calls, the decision may vary depending on the type of scheme. Mid and small-cap schemes, for example, might maintain higher cash reserves compared to large-cap schemes, as they are less liquid and greater cash holdings may prove beneficial during market corrections and substantial redemptions.
