MF schemes see 5% drop in cash holding in Nov; lowest level in 4 months

The cash holding, which rose to a high of 6 per cent in September, has been declining since October amid market correction

The cash holding of equity mutual fund (MF) schemes declined marginally to 5.4 per cent in November, the lowest level in four months. The decline came amid a 14 per cent month-on-month fall in net inflows into equity schemes.

 

The cash holding, which rose to a high of 6 per cent in September, has been on a decline since October amid market correction. At the end of October, the cash level stood at 5.5 per cent, according to a report by Motilal Oswal Financial Services. The report is based on the cash holding of equity schemes of the top 20 fund houses.

 

PPFAS MF had the highest cash holding at 21.5 per cent, while all other fund houses had less than 10 per cent cash in their equity schemes.

 

According to MF officials, while the mandate is to stay fully invested, they have the leeway to keep the powder dry during times of uncertainty or excessive valuations.

 

The cash holding also depends on the quantum of inflows and outflows from the scheme at the fag end of the month. Equity MF inflows had moderated in November, weighed down by a decline in lump sum investments and new fund offering collections.

 

Active MF schemes received Rs 35,943 crore in November, down 14 per cent from the all-time high inflow of Rs 41,887 crore in October.

 

The changes in cash levels are also subject to changes in the overall fund size due to market movement. Even if cash holding is constant, a decline in overall assets under management (AUM) of the equity schemes due to market fall will result in higher cash levels.