Equity mutual funds' cash piles grow even as inflows keep declining

Motilal Oswal MF and PPFAS MF added the largest cash buffers, shows report

Cash holdings of equity mutual fund (MF) schemes edged higher in October even as fresh inflows cooled. Equity schemes held ₹2.44 trillion in cash at the end of October 2025 — about ₹5,200 crore more than a month earlier, according to a report by Nuvama Alternative & Quantitative Research.

 

However, cash as a share of total assets slipped from 3.2 per cent in September to 2.2 per cent in October, as a sharp market rally lifted overall assets under management (AUM).

 

Net inflows into equity MF schemes eased for the third straight month in October, falling 19 per cent month-on-month to ₹24,690 crore. 

Cash levels in equity schemes typically hinge on net inflows and fund managers’ market view, though most funds avoid holding more than 5 per cent. 

Motilal Oswal MF and PPFAS MF led the increase, each adding about ₹2,500 crore to their cash buffers — taking them to ₹8,400 crore (9 per cent of equity AUM) and ₹33,400 crore (25 per cent), respectively — suggesting tactical tilt towards caution or readiness to deploy, the Nuvama report observed.

 

“SBI MF and HDFC MF also raised cash levels by ₹2,100 crore and ₹1,800 crore, while ICICI Prudential MF added ₹1,700 crore, reflecting a broad-based uptick in cash positioning across leading fund houses. Conversely, Axis MF, Kotak MF, and DSP MF deployed cash, reducing balances by ₹1,900 crore, ₹1,100 crore, and ₹800 crore, respectively. Nippon India MF and Aditya Birla Sun Life MF also trimmed cash holdings marginally,” it added.

 

Equity markets logged their strongest month in seven months, with benchmark indices gaining over 6 per cent. The rally pushed the Nifty 50 closer to its all-time highs from September 2024.

 

With markets recovering, valuations have again become a talking point.

 

“Valuations remain elevated but broadly defensible. Largecaps are trading above historical averages, while midcaps hover around 27–28x earnings. Midcaps continue to command a premium, helped by stronger double-digit earnings growth versus high single-digit growth for largecaps,” Franklin Templeton MF said in a report.

 

At the macro level, most fund managers remain constructive.

 

“We believe India’s growth cycle may be bottoming out. Interest rates and liquidity cycle, lower crude prices, and a normal monsoon all support a pickup in growth. While global trade uncertainty remains a headwind for private capital expenditure in the near term, we expect India’s investment cycle to be on a medium-term uptrend,” HSBC MF said.