MFs keep cash buffers high in July amid market volatility

markets

After two consecutive months of decline, active equity mutual funds maintained elevated cash buffers in July, signalling fund managers’ continued caution amid market volatility.

Data from ACE Equities shows that aggregate cash holdings in these schemes inched up to 3.77 percent in July from 3.68 percent in June. In value terms, cash reserves rose to Rs 1.58 lakh crore from Rs 1.55 lakh crore month-on-month.

Market experts note that while fund managers may hold cash to navigate uncertain conditions, this strategy carries its own risks. The prevailing caution is largely attributed to elevated valuations across market-cap segments compared with historical averages.

According to Sriram BKR, Senior Investment Strategist at Geojit Financial Services, earnings growth and performance remain key factors influencing fund allocation decisions. Many fund houses avoid taking significant cash calls, making earnings trends and valuation levels critical in shaping deployment strategies.

This marginal uptick in July followed a dip in cash holdings to Rs 1.50 lakh crore in June and Rs 1.65 lakh crore in May, from Rs 1.73 lakh crore in April, as funds were deployed into block deals and initial public offerings.

July’s market environment was marked by heightened volatility, driven by weak corporate earnings, sustained foreign fund outflows, and expectations of higher tariffs. Benchmark indices Sensex and Nifty fell nearly 3 percent, while the BSE MidCap and SmallCap indices declined 2.3 percent each.

Among large fund houses, Parag Parekh Mutual Fund and Axis Mutual Fund increased cash reserves to Rs 11,795 crore and Rs 8,717 crore respectively in July, from Rs 9,294 crore and Rs 6,545 crore in June. Quant Mutual Fund and Sundaram Mutual Fund also reported higher cash positions.

Trust Mutual Fund and Samco Mutual Fund saw sharp jumps in cash allocations, rising to 11.3 percent and 9 percent from 4 percent and 2 percent respectively. In contrast, Unifi Capital, Baroda BNP Paribas, and PGIM India Mutual Fund reduced cash holdings to 14.3 percent, 3.4 percent, and 3 percent respectively, down from 25.5 percent, 6.4 percent, and 5 percent in June.

Analysts anticipate that cash levels could rise further if inflows remain strong and managers refrain from deploying capital due to limited attractive investment opportunities, or maintain buffers for liquidity purposes.

Cash Holdings