Equity fund managers stay cautious, hold elevated cash level despite market rebound

Total cash holdings of active equity mutual fund schemes dipped to 5.13 percent last month against 5.31 percent in February.

Cash holdings of active equity mutual fund schemes declined slightly in March but remained at elevated levels, suggesting that fund managers have been exercising caution despite decent market recovery.

According to data from Prime Database MF, 64 percent of mutual fund houses saw a dip in their cash holdings in active equity schemes during the last month.

This came amid the BSE benchmark Sensex jumping 5.77 percent and NSE Nifty 50 spiking 6.30 percent in March.

On a percentage basis, the total cash holdings in active equity mutual fund schemes dipped to 5.13 percent last month from 5.31 percent in February.

However, on an aggregate basis, cash holdings increased to Rs 1,51,832 crore month-on-month from Rs 1,46,024 crore in February. This rise in aggregate cash holdings could be on account of an 8 percent sequential rise in active equity assets under management (AUM) during March.

Notably, at Rs 1,51,832 crore, the total cash holdings of active equity funds are at the highest level on record.

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As per experts, while there was a slight dip in the cash holdings of active equity funds in March on a percentage basis, the overall levels remain elevated across most equity schemes.

“Typically, portfolio managers increase cash allocations when they are uncertain about market outcomes. While they may not aggressively cut positions, raising cash in the portfolio becomes a key tool to manage volatility. This approach allows them to stay cautious without making abrupt changes to the equity portion,” said Santosh Joseph, Co-founder and CEO, Germinate Investor Services.

Cautious stance at large fund houses

Keep in mind that looking at the cash holdings of mutual funds for a specific month may not give the complete picture as it captures the fund’s position on the last day of the month.

“Cash may also be held temporarily while making changes to the portfolio—selling certain positions and waiting for the right time to redeploy. In some cases, it’s simply about keeping dry powder ready for any extreme events or attractive opportunities that may arise,” said Joseph.

However, Prime Database MF data shows that the big fund houses such as SBI MF, ICICI Prudential MF, Motilal Oswal MF, PPFAS MF, DSP MF and Franklin Templeton MF have been building cash positions in their active equity funds over the last three months.

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For this data, active equity schemes from contra, dividend yield, ELSS (Equity Linked Savings Scheme), flexicap, focused, large & midcap, largecap, midcap, multicap, sectoral/thematic, smallcap and value segments were considered.

“Clearly the apprehension of fund managers to deploy capital despite a major market correction proves that the current change in world order is something that the experts believe is still not fully played out and the worse is yet to come and a worst-case situation could be of the Nifty falling below 21,000 levels. At which points we believe large cash positions would start getting deployed and act as a major floor for the markets as well,” said Vivek Banka, Co-Founder, Goalteller.

Measured buying

Among the large fund houses, Axis MF saw the biggest drop in net cash holdings in active equity funds to 7.13 percent in March from 9.32 percent, a month earlier.

Further, active equity cash holdings at Nippon India MF have also been gradually coming down over the past two months.

Additionally, the net cash holdings of Helios MF, which spiked to 20.18 percent at the end of February, came down to 3.28 percent at the end of last month.

Bajaj Finserv MF, whose active equity cash holdings also saw a sharp jump in February to 14.87 percent, saw a moderation in cash levels to 5.25 percent in March 2025.

How should investors read this data?

As the markets were galloping ahead last year, several fund managers had built up large cash positions.

While on an aggregate basis, cash levels largely remained flat in active equity funds, noticeable and varied changes were visible.

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According to Banka, investors should be prepared for a further downside in the markets and should stick with good and reputed fund managers and have confidence in their abilities to steer them through these times.

Meanwhile, Joseph is of the opinion that elevated cash levels in equity funds suggest that fund managers are exercising caution.

“They likely expect markets to remain rangebound or volatile and are using cash not just as a hedge but also as a tactical lever to enhance performance when the time is right,” he said.

Overall cash holdings

When considering all funds, including debt, hybrid, equity, commodity, overseas, and passive fund categories, data shows that cash holdings saw a major dip in March.

On a net basis, overall cash holdings of the Indian mutual fund industry saw a major dip to 3.91 percent in March against 5.62 percent in February.

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Further, on an aggregate level, cash holdings came down to Rs 2,57,301 crore last month against Rs 3,61,404 crore in February.

Investors should keep in mind that although elevated cash levels in active equity funds may signal caution or a defensive stance, relying too heavily on this single metric can be misleading.