New Delhi: Mutual funds are sitting on a huge cash pile of over Rs12,000 crore, awaiting right market situation to deploy the funds and in turn protecting investors from any sharp losses due to market downturn.
An analysis of the equity and cash allocations of equity diversified funds shows cash piles have increased steadily from 10% in April to over 14% at the end of August.
“Exposure in equities as an asset class to the total market value of the funds has decreased from 86% in July to 85.5% in August, while cash holdings have increased by 48 basis points to 14.53% in August,” brokerage firm HDFC Securities’ report analysing equity moves of fund houses stated.
The allocation to cash in the past four months have increased from 10.7% in April to 11.97% in May and from 13.8% in June to 14.05% in July, the report showed.
The total net asset value (market value) of these funds has also decreased sharply to Rs86,953.29 crore in August from Rs98,912.01 crore in April, this year.
“Domestic mutual funds that have been trying to provide some support to the Indian markets by bottom fishing kept away from the volatile equity markets during the month of August,” the report said.
“The cash piles are well placed to maintain buying interest and propel the sagging market forward,” an official from a leading fund house said.
“Investors showed a greater propensity for debt oriented funds including Fixed Maturity Plans,” the report added.
Besides, mutual funds were predominantly buyers in the banking, computer-software, engineering, pharmaceuticals, auto, construction and personal care space in August, while, telecom services provider, power, steel and refineries stocks weighed heavy on their sell list.
Assets under management
A separate report by mutual fund tracking firm Value Research stated that the industry’s total cash, with respect to assets under management (AUM), has increased from 5% to 11% during December, 2007 to July, this year.
The five funds with the highest amounts of cash are Reliance Natural Resources, Reliance Growth, Reliance Diversified Power Sector Retail, Reliance Equity and Reliance Vision.
At the beginning of the year, these five funds accounted for 37% of the total cash held by all mutual funds, while the entire Reliance family of funds accumulated 42%.
“Though the top five Reliance funds have maintained cash of 27% on an average, as on July 2008, the fact that almost half of the assets in cash are with Reliance Mutual is more so because of the size of their funds which account for 23% of the industry’s assets,” the report said.
According to Value Research, the basic objective of maintaining high cash in an equity funds is that it protects investors against market downswings.
An average diversified equity fund has shed 36% between December-July. The aforesaid top five Reliance funds have lost 28% on an average, thereby the high cash levels have shielded the investors from downturn, it added.