India’s mutual fund industry is adopting a more defensive approach as volatility in the equity market prompts fund managers to increase their cash buffers. Data compiled by Zee Business research shows that nearly 63 per cent of mutual fund houses increased their cash holdings in February, reflecting growing caution among asset managers.
Out of 48 fund houses analysed, 30 raised their cash allocation during the month. The data suggests that equity mutual funds collectively held around Rs 1.36 lakh crore in cash in February, accounting for roughly 2.62 per cent of total equity assets under management.
Market volatility pushes fund managers towards defensive strategy
Rising uncertainty in the equity market has led many mutual fund managers to adopt a defensive strategy. Holding higher cash levels helps reduce portfolio risk during volatile phases while providing flexibility to deploy funds when attractive opportunities emerge.
Industry analysts say fund managers typically increase cash exposure when market valuations appear elevated or when global and domestic uncertainties create short-term instability in stock prices.
The latest data compiled by Zee Business research indicates that several fund houses are maintaining a cautious stance, choosing liquidity over aggressive equity deployment for the time being.
NFO inflows also add to cash allocation
Apart from defensive positioning, a part of the cash increase is linked to fresh inflows through new fund offers.
According to Zee Business research, around Rs 5,357 crore raised through new fund offers (NFOs) has also contributed to the overall cash holdings in equity mutual funds.
Since NFO money is gradually deployed into markets, it often temporarily appears as higher cash allocation within fund portfolios.
Fund houses that increased cash holdings
Several large asset management companies significantly increased their cash reserves during February.
- SBI Mutual Fund increased its cash holdings by nearly 21 per cent
- Quant Mutual Fund recorded a sharp 219 per cent jump in cash allocation
- ICICI Prudential Mutual Fund raised its cash holdings by around 22 per cent
These increases indicate that some fund managers are preparing to deploy funds during market corrections or are waiting for more favourable valuations before investing further.
Some fund houses reduced cash exposure
While most fund houses increased their cash buffers, a few chose to reduce their cash exposure, signalling a different investment approach.
- HDFC Mutual Fund reduced its cash holdings by around 30 per cent
- Motilal Oswal Mutual Fund (MOSL) cut cash allocation by nearly 48 per cent
- PPFAS Mutual Fund lowered its cash holdings by about 29 per cent
This divergence reflects varying views among fund managers on market valuations and investment opportunities.
Top mutual fund houses with highest cash holdings
Data from Zee Business research shows the following fund houses held the largest cash balances in February compared with January:
- SBI Mutual Fund – Rs 26,101 crore in February vs Rs 21,503 crore in January
- ICICI Prudential Mutual Fund – Rs 15,514 crore vs Rs 12,683 crore
- Quant Mutual Fund – Rs 5,210 crore vs Rs 1,634 crore
- DSP Mutual Fund – Rs 5,030 crore vs Rs 4,088 crore
- Kotak Mahindra Mutual Fund – Rs 4,592 crore vs Rs 3,569 crore
The data suggests that large asset managers are maintaining significant liquidity buffers as they navigate the current market environment.
What it means for mutual fund investors?
When fund managers hold more cash in equity mutual funds, it usually means they’re being careful—not that they’ve lost faith in the market over the long run. What really matters for investors is this: fund managers are staying on their toes, making changes as the market shifts, and trying to strike a balance between managing risk and chasing long-term gains.