Mutual Funds Raise Cash Holdings Amid Market Volatility in February

Several mutual fund houses increased cash allocations within their equity portfolios during February as market volatility persisted. Data from the Prime MF Database indicates that fund managers slightly raised liquidity levels even though equity markets recorded only modest declines during the month. 

Majority of Fund Houses Increase Cash as Markets Turn Volatile 

Out of 48 mutual fund houses analysed, 30 increased their cash holdings while 18 reduced their cash positions during February. The shift came at a time when benchmark indices showed weakness, with the Sensex falling 1.2% and the Nifty declining 0.6% during the month. 

Equity mutual funds collectively held ₹1.36 lakh crore in cash at the end of February, slightly higher than ₹1.35 lakh crore recorded in January. However, cash levels relative to total assets remained largely stable. Cash accounted for 2.62% of equity assets in February, compared with 2.63% in January, indicating that most fund managers largely stayed invested despite market fluctuations. 

Part of the increase in cash balances also came from fresh inflows through new fund launches, as funds typically hold cash before gradually deploying it into equities. 

NFO Inflows and Cash Build-Up Across Fund Houses 

During February, 21 open-ended schemes raised about ₹4,979 crore, while one close-ended scheme mobilised ₹378 crore, taking total collections through new fund offers (NFOs) to around ₹5,357 crore. 

Equity-oriented schemes contributed the majority of these inflows with ₹3,955 crore raised. Among the launches, SBI Mutual Fund’s SBI Quality Fund collected ₹2,245 crore, making it the largest equity NFO during the month.  

Other launches included Kotak Mahindra Mutual Fund’s Kotak Services Fund which raised ₹760 crore, Edelweiss Mutual Fund’s Financial Services Fund with ₹224 crore, Motilal Oswal Mutual Fund’s Financial Services Fund with ₹154 crore, and Jio BlackRock Mutual Fund’s Sector Rotation Fund with ₹98 crore. 

Cash Position Changes Across Mutual Funds 

Among large fund houses, SBI Mutual Fund held the highest cash balance at ₹26,101 crore, followed by HDFC Mutual Fund with ₹19,453 crore and ICICI Prudential Mutual Fund with ₹15,514 crore. Axis Mutual Fund and Kotak Mahindra Mutual Fund also held sizeable cash balances of ₹10,892 crore and ₹4,592 crore respectively. 

In terms of increases, SBI Mutual Fund added ₹4,597 crore to its cash holdings, representing a 21% rise. Quant Mutual Fund recorded a sharp increase of ₹3,576 crore, or 219%, taking its cash balance to ₹5,210 crore and raising its cash allocation to 7.28% of equity assets. ICICI Prudential Mutual Fund increased cash by ₹2,831 crore, while Kotak Mahindra Mutual Fund and DSP Mutual Fund added ₹1,023 crore and ₹942 crore respectively. 

On the other hand, HDFC Mutual Fund reduced its cash holdings by ₹8,236 crore, marking the largest decline. Motilal Oswal Mutual Fund cut ₹2,534 crore, PPFAS Mutual Fund reduced ₹2,043 crore, while Axis Mutual Fund and Nippon India Mutual Fund also trimmed their cash positions. 

Among smaller asset managers, Old Bridge Mutual Fund had the highest cash allocation at 15.48% of equity assets, followed by Bank of India Mutual Fund at 13.14% and Capitalmind Mutual Fund at 10.94%. Bank of India Mutual Fund recorded the largest rise in allocation, increasing 5.35 percentage points, while Quant Mutual Fund’s allocation rose by 4.97 percentage points.  

Conversely, Samco Mutual Fund saw the steepest decline in cash allocation, dropping 36.89 percentage points, followed by Capitalmind Mutual Fund and Abakkus Mutual Fund which also recorded notable reductions. 

Read More: SBI Nifty Midcap150 ETF NFO Opens on NSE MF Invest Platform! 

Conclusion 

The rise in cash holdings across several mutual fund houses in February reflects a cautious portfolio stance amid volatile market conditions. While overall cash allocation relative to assets remained stable, individual fund houses adjusted liquidity levels based on inflows, investment opportunities and risk management strategies. 

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.