Cash holdings with equity mutual fund schemes soar for a 5th month

cash levels in April surged to 7.2%, the highest since May 2021

Cash-holding in equity mutual fund (MF) schemes went up for the fifth straight month in April as fund managers continued with a restrained approach amid global trade uncertainties.

 

As of April 30, equity schemes from the top-20 fund houses were holding 7.2 per cent of their portfolios in cash, compared to 6.9 per cent in March, and 6.8 per cent in February, according to a report by Motilal Oswal Financial Services. The aggregate cash-holding in April was the highest at least since May 2021.

 

At the industry level (including all fund houses), the cash-holding was at 6.1 per cent, a report by BNP Paribas said. "Domestic institutional investors (DIIs) remained slightly cautious, with cash allocation in MFs rising to a multi-year high of 6.1 per cent of assets under management (AUM)," it stated.

 

Cash levels are seen as an indication of the fund manager's view on the market. While MF executives say that their mandate is to remain fully invested, they strategically maintain some cash reserves during periods of market uncertainty, expectations of better buying opportunities going ahead or excessive valuations.

 

However, according to experts, changes in cash levels in equity schemes can also be transitory in nature due to major changes in portfolio or sharp inflow or outflow at the end of the month. The change in value of equity holding due to market movement also impacts the cash-holding on a percentage level.

 

Of the top-20 fund houses, four had cash-holding of 10 per cent or more. Parag Parikh Financial Advisory Services (PPFAS) had the highest cash-holding at 23.6 per cent. Motilal Oswal, Quant and SBI were the other fund houses with elevated cash levels.

   

April was another volatile month for the equity market as the US announced hefty tariffs on trade. Soon after, the tariffs were put on hold for 90 days. The Nifty 50 index dipped 7.5 per cent during the first few sessions and then went up nearly 12 per cent.

 

According to fund managers, developments on the trade front will continue to have a bearing on the equity market.

 

"Amid these positives (possibility of US-India trade deal and Reserve Bank of India's, or RBI’s, measures to support growth), a big question mark on global growth and its impact on the Indian economy remains. Global economic uncertainty has soared and may impact corporate capex plans going forward, putting a ceiling on Indian growth even as potential market share gains in the event of a successful trade (deal) with the US as well as RBI actions act to put a floor (sic)," SBI MF said in a recent report.

 

HSBC MF said the medium-term outlook on India is constructive as economic growth is expected to pick up.

 

"Growth cycle in India may be bottoming out. Interest rate and liquidity cycle, decline in crude prices, and normal monsoon are all supportive of a pickup in growth going forward. Although global trade-related uncertainty remains a headwind to private capex in the near term, we expect India’s investment cycle to be on a medium-term uptrend supported by government investment in infrastructure and manufacturing, pickup in private investments, and a recovery in real estate cycle," the fund house said in a report.

 

Foreign portfolio investors (FPIs) turning net buyers of Indian equities since March is also a positive for Indian equities. However, investments in equity MF schemes continue to slow down. Equity schemes reported net inflows of ₹24,269 crore in April, down 3 per cent month-on-month (M-o-M) and 41 per cent lower compared to the all-time high of ₹41,156 crore in December 2024.