Mutual funds kept less cash in pocket in March after 2 months of hoarding

Notwithstanding all the noise surrounding expensive valuations in a bull market, the cash holding of mutual funds decreased to 4.71% in March from 4.82% on a month-on-month (MoM) basis. At the end of March, the total cash holding of all equity-based mutual funds stood at Rs 1.33 lakh crore.

The cash holding by the mutual funds as a percentage of total AUM decreased last month after increasing for two consecutive months. In December 2023, the cash holding by the mutual funds as a percentage of total AUM was 4.20%, which further increased to 4.36% in January and to 4.82% in February, according to ACE MF database.



In March, SBI Mutual Fund was sitting on the largest cash pile of Rs 23,384 crore. The fund house had an equity AUM of Rs 5.48 lakh crore.

On a month-on-month basis, 26 mutual funds increased their cash allocation as a percentage of total AUM. There were around 42 mutual fund houses in the market during the month. Around 16 fund houses reduced their cash allocation in March.

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Shriram Mutual Fund increased its cash allocation by around 548 bps from 12.48% in February to 17.96% in March. Old Bridge Mutual Fund, a new entrant in the mutual fund industry, was sitting on Rs 39.47 crore cash pile in March from Rs 25.45 crore in February.

On the other hand, Bajaj Finserv Mutual Fund decreased its cash allocation as a percentage of total AUM by 1,822 bps from 23.61% in February to 5.39% in March.

Bank of India Mutual Fund also saw a decline in cash allocation by 779 bps from 13.24% in February to 5.45% in March.

The cash holding went up even as investors were worried about valuations and froth in the broader market which led Sebi to impose a monthly exercise of doing stress tests on smallcap and midcap mutual funds.

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Some mutual fund houses also opted to stop lumpsum investments and keep only the SIP/STP/Switch option open for further investments in their small and midcap funds in March.

In March, the net inflows in the equity mutual fund categories declined by 16% to Rs 22,633.15 crore from Rs 26,865.78 crore in February. Amid the rising froth in the market, smallcap investors started to liquidate their investments for the first time after two and a half years. According to the monthly AMFI data, the smallcap category saw an outflow of Rs 94.17 crore in March. The category witnessed its last outflow in September 2021 of Rs 248.73 crore.