Cash is king: Mutual funds increase cash pile amidst market uncertainty, volatility
At a time of high market volatility and in this ongoing market correction, several fund managers have significantly increased the cash holdings in their respective funds.
Moneycontrol analysed the portfolio disclosures of around 12 Flexi Cap funds, and data shows that seven of the funds saw a significant increase in cash positions in February 2025 when compared to previous month, while the remaining five saw a dip in cash holding.
Experts attribute this trend to fund managers’ cautious stance owing to market uncertainty, thus opting to hold more cash rather than deploy into equities during February.
Last month, the benchmarks Sensex and Nifty 50 fell between 5-6 percent while the broader BSE Mid and Smallcap indices lost 10.5 percent and nearly 14 percent, respectively.
The biggest jump in cash levels was seen in the case of Samir Arora-backed Helios Mutual Fund. The cash holdings in Helios’ Flexi Cap fund rose from 1.7 percent of assets under management (AUM) in January to 20.6 percent in February.
As per the portfolio disclosure, the fund reduced the number of stocks to around 45 from the previous 53, exiting stocks like Indian Hotels, HAL and HCL among others.
Similarly, 360 One’s Flexi Cap fund increased its cash position from 3.39 percent to 10.1 percent. Motilal Oswal Mutual Fund also took a conservative approach, increasing its cash allocation in its Flexi Cap fund from 16.49 percent in January to 23.34 percent in February.
Other fund houses that raised cash positions in their Flexi Cap funds include DSP Mutual Fund (up 19 percent), Axis Mutual Fund (up 17 percent), and PPFAS (up 8 percent).
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To be sure, all the fund houses have not yet disclosed the details for the month of February.
On the other hand, some asset management companies (AMCs) took a contrarian view and deployed more funds while reducing the quantum of cash.
SAMCO Mutual Fund reduced its cash position in its Flexi Cap fund from 5.1 percent to 1.36 percent while Baroda BNP and WhiteOak also trimmed their cash holdings, down 31 percent and 10 percent, respectively.
The decision to lower cash reserves suggests that these fund managers may be comfortable with the current valuations and investment opportunities, despite the ongoing heightened volatility.
Holding More Cash – A Trend?
An increase in cash holdings is often looked upon as an indicator of cautious sentiment. Incidentally, fund houses are allowed to keep a percent of the AUM in cash for a variety of reasons – investing when they feel valuations are attractive and even meeting redemption requests. Currently, high valuations remain a concern for Indian equities – a view held by both global and domestic investors.
While some feel that these numbers could be an indicator of changing trends, a large section of market participants disagree, and believe these numbers need to be looked at from a longer time frame.
Responding to a comment on social media platform X about Helios’ change in stance, Samir Arora said that one cannot look at single instances and say that a fund has taken a cash call or changed their stance.
Santosh Joseph, CEO and MD of Germinate Investor Services (an AMFI-registered MF distributor) agrees. “The decision to increase cash position could be a strategic call, it could be a tactical call, it could be just a short term interim call, maybe for a month,” said Joseph.
“We also have to remember that whenever we take these data of cash call, it is sometimes pointed towards the time when this data is being disclosed. For example, in the February end data, if there was a large amount of cash, it may have been there only for a short while, could be a week, could be 10 days. Because only when you see the sustained amount of cash over a couple of months due to the monthly portfolio disclosures, only then you can most certainly say that the fund has taken a cash call or raised cash,” he said.
Joseph said Flexi Cap funds by nature have the ability to be a little more active in their management compared to the other funds. “You will notice that in the Flexi Cap category, the movement between large and mid and small and a slightly higher exposure to cash is normal,” he said.
Volatile Markets and Investor Preference
Over the last six months, both benchmark indices have been under pressure at a time of global uncertainty and heavy selling from FIIs. The Nifty 50 Index has fallen around 11.39 percent and BSE Sensex has fallen around 10.68 percent, during this period.
In this volatility, Flexi Cap funds have been gaining popularity in the market as they provide investors and fund managers the opportunity to invest across market caps and asset types without specific percentage requirement for large, mid or small cap stocks.
In January, the segment saw the third-highest inflows of around Rs 5,600 crore, after Thematic Funds and Small Cap funds. Currently, there are around 39 open-ended equity Flexi Cap funds.
Further, data from Value Research shows that Flexi Cap funds have given average returns of around 1.72 percent on a 1-year basis and around 13.21 percent on a 3-year basis against around 0.84 and 13.62 percent for the same period for the benchmark BSE 500 Total Return Index.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.