Equity MFs increase cash holdings by 80 bps in January

They are holding 3.8% of equity AUM, or about Rs 12, 000 crore, in cash

In January, the cash holdings of equity mutual funds (MFs) rose by 80 basis points, amid a sharp rally in stock markets. Cash accounted for 3.6 per cent of the total equity assets under management (AUM), against 2.8 per cent in December, according to an Edelweiss report, ‘Fund Insight’.

In absolute terms, MFs had a cash pile of Rs 12,000 crore at the end of January. About 90 per cent of the cash belonged to the 10 biggest fund houses, which account for about 80 per cent of the equity AUM.

ICICI Prudential MF, India’s second-largest fund house, had a cash pile of Rs 2,644 crore (6.7 per cent of its equity AUM), with Franklin Templeton next at 5.6 per cent. Birla Sun Life MF and UTI MF had 4-4.5 per cent of their equity AUM in cash.

HDFC MF, the country’s largest fund house, with total assets of about Rs 1.5 lakh crore, had only 1.57 per cent of equity assets as cash component. In absolute terms, the cash pile stood at Rs 900 crore.

Fund managers said increasing cash levels was a tactical call, as the underlying mood in the stock market had turned quite bullish. They added the coming Budget was “critical” and a lot would depend on how the government planned to go forward. They said they would continue with a strategy of ‘buying on dips’. There would be enough opportunities to deploy their surplus cash in stocks in the future, they added. A fund manager said cash holding also depended on the mandate of a particular scheme. “If a scheme has a mandate to go high on cash when markets are high, the cash component will automatically rise.”

Amid massive inflows in the equity segment, expected to be a record in the history of the sector, fund managers had increasingly parked funds in stocks in the April-December period of 2014. In January, they took a pause, with net investment at only Rs 900 crore, the lowest in several months.

“During Budget days, markets tend to be volatile. Investors who are opportunistic are bound to panic, as has always been the case. Industry might be taking into account a similar possibility so that any abrupt increase in redemptions, if any, are honoured smoothly, without diluting existing holdings,” said the chief executive of a mid-sized fund house. Currently, about 400 equity-related funds manage assets worth Rs 3.41 lakh crore.