A growing pile of cash is making more noise than stock picks in some mutual fund houses. Five mutual fund schemes now hold Rs 58,442 crore in cash, accounting for a staggering 30% of the entire mutual fund industry’s cash reserves.
Out of a Rs 2 lakh crore industry-wide cash corpus, these five are sitting on the largest war chest. Parag Parikh Flexi Cap Fund tops the list with the highest cash pile of Rs 22,360 crore. SBI Contra Fund follows with Rs 10,028 crore, HDFC Flexi Cap with Rs 10,013 crore, Motilal Oswal Midcap with Rs 9,479 crore, and HDFC Mid-Cap Opportunities with Rs 6,562 crore, according to data from Elara Securities.
That’s not all. About 25% of the entire mutual fund industry’s cash is concentrated in just four schemes, and half of it is held by only 18. What’s more telling is that the cash hoarding has lasted over a year for many of them with experts saying it isn’t a tactical timeout but a strategic positioning reflecting caution on current market valuations, especially in the mid and smallcap segments.“Most of these schemes have maintained elevated cash levels for more than a year. Importantly, 25% of the incremental inflow over past 9-months have come in 12 schemes which have not got totally deployed in the market, raising cash levels,” said Elara’s Sunil Jain.Also Read | Promoter, PE & VC selling crosses Rs 40,000 crore in 2 weeks: Red flag for Nifty bulls?
The hesitation to buy in the secondary market despite a roaring rally hints at something deeper. “The persistence of high cash balances over a long period—despite ongoing market strength—suggests that most of these fund managers are not likely to aggressively chase secondary market rallies. Rather than deploying cash in the secondary market, managers are channeling liquidity into the primary market. A large chunk of this paper supply has come from promoter divestments and PE exits, not new capital formation. This signals distribution, not expansion,” he said.Largecap schemes continue to show comfort in deploying funds with overall cash levels falling to Rs 16,500 crore from Rs 19,120 crore in April. But midcap schemes are showing signs of withdrawal. Cash levels in midcap funds have surged to 7.3%, the highest since 2020, fuelled by massive inflows into Motilal Oswal Midcap Fund. The total cash here is now Rs 29,900 crore, up from Rs 27,700 crore in April.
Smallcap schemes have only slightly trimmed their cash stockpiles. At Rs 25,900 crore, they’re just a notch below last month’s Rs 25,250 crore. Overall, the mutual fund industry’s active equity schemes collectively held Rs 2 lakh crore in cash in May, slightly down from Rs 2.06 lakh crore in April.
Parag Parikh Mutual Fund leads in cash as a percentage of AUM—holding 21.3% in cash. Motilal Oswal is not far behind at 19.9%, according to Elara.
For Parag Parikh, taking cash calls isn’t new. The fund house’s CIO Rajeev Thakkar, in an earlier note, had compared this approach to playing Test cricket—not swinging wildly, but waiting patiently for the right ball. For him, holding cash is less about timing and more about readiness—for the right price, the right stock, and the right pitch.
“Holding some amount of cash gives us the opportunity to deploy whenever a stock trades at attractive valuations to deploy. Investment opportunities do not come everyday across all companies and one has to wait to deploy money well,” Thakkar had said, adding that one shouldn’t perceive it as market timing but rather waiting to deploy at the right valuation.
For fund houses like Quantum AMC, which has around 12% cash in its portfolio, the elevated cash is not a tactical bet, but a result of a valuation-driven discipline.
“Given that markets, in aggregate, are perceived as expensive with fewer attractive opportunities, our cash levels naturally become slightly elevated. We are disciplined about adhering to our investment philosophy, which prioritizes value and long-term potential. When we find that the opportunities aligning with our rigorous selection criteria are not readily available at attractive valuations, we prefer to hold cash rather than deploy capital into overvalued assets. This approach ensures that we are positioned to capitalize on opportunities when they do emerge, rather than being forced to invest simply to deploy capital,” Chirag Mehta, CIO, Quantum AMC, told ETMarkets.
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The firm sees opportunity in largecaps but remains selective in smallcaps, waiting for reasonably priced entries.
Edelweiss Mutual Fund maintains less than 5% cash across portfolios and relies more on internal allocation shifts between large, mid, and smallcap segments to manage valuation risk.
“We don’t want to mix asset allocation with stock selection. Our job is stock selection and not asset allocation. Asset allocation is how much money should I put into equities versus how much cash do I hold. That is typically best done by a distributor who knows the client’s cashflow profile,” explained Trideep Bhattacharya, CIO – Equities at Edelweiss Mutual Fund.
ICICI Direct’s Pankaj Pandey also suggests against making large cash calls. “Generally, we do not suggest holding a proportion of cash because we have seen historically it is a very difficult call to take. For holding cash, you need luck to get prices at lower levels and most importantly, courage to deploy cash during such times,” he said.
The question remains whether these fund managers are displaying prudent risk management or missing out on continued market gains while sitting on the sidelines with their massive cash reserves.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)