Mutual Funds’ Cash Levels at 15-Year High in March 2025

Mutual funds in India are now sitting on their highest cash reserves in 15 years, with holdings surging to nearly ₹1.96 lakh crore as of March 2025, as per a news reports. This cautious positioning reflects fund managers’ reluctance to invest aggressively in a market where valuations appear stretched. 

Why are Mutual Fund Managers Increasing Cash in a High-Valuation Market? 

Fund managers are choosing to hold cash rather than invest in expensive equities, waiting for better entry points. This strategy is seen as prudent capital preservation, not necessarily a sign of pessimism. 

Large, Mid, and Small-Cap Equity Mutual Funds All Raising Cash  

Data shows that large-cap schemes held 4.8% in cash by February 2025, the highest since June 2023. Mid-cap schemes pushed their cash allocation to 6.7%, the most since 2020, while small-cap schemes also hit a high not seen since October 2023. 

In absolute terms, mid-cap funds held ₹24,800 crore and small-cap funds ₹22,340 crore in cash, indicating a broad-based rise in liquidity buffers across categories. 

AMCs Take Cautious Calls on Cash Allocation 

Most major asset management companies (AMCs) such as SBI Mutual Fund, ICICI Prudential, and Motilal Oswal have increased cash allocation in early 2025. Parag Parikh Mutual Fund made frequent adjustments, reducing allocation in late 2024 and raising it again in early 2025. 

While some AMCs maintained or even reduced their cash holdings, the broader trend reflects defensive positioning amid limited attractive stock ideas. 

What Does this Mean for SIP Investors and Market Timing? 

Higher cash levels may signal lower short-term returns as funds stay partially uninvested. However, they give fund managers the flexibility to invest when valuations turn more favorable, possibly offering better medium-term returns. 

According to BankBazaar CEO Adhil Shetty, funds with higher cash buffers may be well-positioned to take advantage of any market corrections, while fully invested funds could be more vulnerable in a downturn. 

Choose Funds Based on Risk Appetite and Horizon 

For conservative or tactical investors, funds maintaining elevated cash levels might offer peace of mind. Meanwhile, long-term investors willing to weather volatility can stay with fully invested funds if they believe in the underlying strategy. 

The key lies in aligning fund choices with your personal risk profile, goals, and time horizon, not in chasing short-term performance. 

Conclusion 

The surge in mutual fund cash holdings suggests fund managers are preparing for better buying opportunities ahead. Investors would do well to take a cue, stay disciplined, review portfolios carefully, and prioritise quality and allocation over impulsive moves. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.