Indian Mutual Funds holding onto large cash positions

Sharekhan, a domestic brokerage reported today that Indian Mutual funds are sitting on 23,545 crores of cash to be deployed in the market. With uncertainty being the key characteristic of stock markets at present, mutual funds are playing it safe and have accumulated a cash pile of over Rs 20,000 crore, which is awaiting deployment after conditions become stable. Rs 19,214 crore lies with existing MFs, while the remaining Rs 4,331 crore has been mobilised through the NFOs.

“As the market continues to yo-yo, fund mangers have decided to play it safe, as it is quite evident from the cash position (percentage of net assets) of the various funds,” mutual fund tracking fund Value Research CEO Dhirendra Kumar said.

As per an analysis of the equity portfolios of March, funds are on a strict liquid diet. This will not only insulate the fund from abrupt fluctuations, as much as possible, but also give the fund managers ample leeway to cherry pick as and when the market throws up great opportunities, Kumar added.

Out of the entire mutual funds industry, diversified equity funds had cash reserves of Rs 7,859 crore (8.64% of the total assets) at the end of March against Rs 4,773 crore (4.46% of total assets) in January 2008.

According to Value Research, a total of 108 diversified equity funds increased their cash allocation expressed as percentage of net assets, while 33 saw a decline.
“While sitting on cash protects the investor from a sharp downfall, it also implies that one can miss out on a sudden upward spurt, a phenomenon which has now become a part and parcel of Indian equity markets, ” Kumar said.