Indian equity mutual funds are sitting on more cash than usual. As of April 2025, aggregate cash levels touched 6% of total equity assets under management (AUM)—well above the historical median of 4%. This uptick has sparked debate: are fund managers trying to time the market, or simply playing it safe during a choppy phase?
Traditionally, equity mutual funds prefer to remain fully invested to capture market upside. However, when valuations appear stretched or volatility spikes, some managers increase cash as a tactical hedge. These so-called “cash calls” are meant to cushion downside and provide liquidity during redemptions. But are they actually effective?
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What is a cash call?
For this analysis, a “cash call” is defined as a situation where a mutual fund’s monthly cash holding exceeds 8% of its AUM and breaches its long-term average by more than two standard deviations. This filters out routine fluctuations or operational buffers, focusing only on deliberate strategic moves.
What the data says
This study looked at monthly cash data from May 2015 to April 2025 across 294 diversified equity mutual funds. Sectoral funds and new schemes with >25% cash (usually due to ongoing deployment) were excluded.
Sectoral funds were excluded due to their narrow mandates and limited flexibility in holding cash. Similarly, new funds were excluded as their high cash levels are typically temporary and operational in nature.
How often do fund managers take cash calls?
Quite rarely. While 208 out of 294 funds (roughly 70%) took at least one cash call over the past 10 years, only 25% of them made more than five such calls in that period. That suggests most managers resort to this tactic occasionally, and only a few use it consistently.
Even now, despite elevated industry cash levels, only 16 of the 294 funds are currently making significant cash calls, indicating that this behaviour is limited to a small subset of fund managers.
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How often are cash calls successful?
Not very often. Out of 573 documented cash calls, only 225 (39%) were deemed successful—defined as at least one month of negative benchmark returns during the elevated cash period.
Moreover, most calls were short-lived. Around 85% lasted just 1–2 months. Only 13 instances stretched beyond five months. Medium-term calls (3–5 months) had a slightly better success rate of 51%, compared to 38% for short-term ones. Still, the overall odds of success remain underwhelming.
Do managers move together?
Yes—especially during periods of macroeconomic stress. The study shows clustering of cash calls around key market events:
Sept–Oct 2018: IL&FS default and the NBFC crisis
July 2019: Post-budget slowdown fears
March–May 2020: Covid-19 outbreak and lockdown uncertainty
This points to a degree of “herding” during volatile phases, with multiple managers acting defensively at the same time.
Key takeaways
Cash calls are rare but real: Most fund managers have taken at least one in a decade, but frequent users are few.
Short-term moves dominate: Over 85% of cash calls are held for just 1–2 months.
Mixed results: Only 39% of calls actually coincide with market declines.
More defensive than opportunistic: Cash calls appear more reactive than predictive.
Final word
While cash calls may offer temporary downside protection, they rarely succeed in consistently timing the market. Fund managers, despite access to macro data and analytical tools, often struggle to align elevated cash levels with actual market downturns.
For retail investors, the message is clear: even the pros find market timing hard. Instead of chasing elusive market tops and bottoms, building a disciplined, goal-aligned, and long-term investment strategy remains the best path to wealth creation.
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Pranab Uniyal, head, HDFC TRU – Investment Advisory & Jyoti Roy, VP, HDFC TRU, Equity Advisory