India’s top 20 mutual funds by equity value currently hold 5.4 percent in cash, which is higher than the five-year average of 3.5 percent.
This, however, is significantly lower than the PMS-AIF (Portfolio Management Services- Alternative Investment Fund) industry’s aggressive cash calls, sometimes to the tune of more than 50 percent in a fund.
“Most investors believe that even if March 2020 recurs, it will be quickly followed by April 2020,” said S Naren of ICICI Prudential AMC at Moneycontrol’s Mutual Fund Summit. In such cases, fund houses sitting on cash might underperform the benchmark when markets rise sharply.
In March 2020, Nifty 50 fell 23 percent on Coronavirus fears, only to sharply recover by 14.6 percent the next month.
Cash calls are usually taken when wealth managers want to protect investors’ money from the downside. “But, protecting the downside is only remembered for a short period of time. The bigger picture is always – participating in the upside,” said Anoop Bhaskar of IDFC MF.
He recalled how IDFC MF was questioned by investors during April 2020, as a smallcap fund launched by them in February 2020, was sitting on a pile of cash when markets turned around. “We told them that we will need 90 days to deploy cash,” he said.
“We took cash calls twice – 2008 and 2020. Both times we got berated. I will not implement that strategy for the third time,” he added.
Currently, IDFC MF has 5.8 percent of cash holding, ICICI Prudential MF has 8.2 percent and SBI MF has 9.7 percent.
Also Read: Moneycontrol Mutual Fund Summit | Financials emerge as top bet for 2023
“If an investor is putting money in my fund, I am going to assume that it is his asset allocation’s equity component,” R Srinivasan of SBI MF said. “Market timing is overrated. I need to manage the investor’s equity allocation well and give better relative returns.”
Market regulator SEBI has no limits on how much cash can a mutual fund hold. Fund managers usually hold 5-10 percent cash. That said, the overall cash holding is higher than five-year average at the moment as high valuations, fear of recession and rise in volatility is keeping euphoria in check.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
