The incongruous behaviour of the stock market since the start of the year has forced mutual funds to pile up high levels of cash. While there has been a fall of 25 per cent in the total assets managed by mutual funds December 2007 to July 2008, the industry's total cash, with respect to assets under (AUM), has increased from 5 per cent to 11 per cent during the same time.
Reliance Mutual Fund, which has the distinction of maintaining significant cash positions, has emerged as the ruler of the roost with a striking 47 per cent of the total cash with all equity funds as on July 2008. By July-end, the total AUM of all equity funds was Rs 1.22 lakh crore of which nearly Rs 13,836 crore was in cash, which is 11 per cent. Reliance's equity funds together account for Rs 6,542 crore of the total cash. Besides this, the top five funds in terms of highest amounts of cash holdings also belong to Reliance Mutual Fund.
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 start of the year, January 2008, these five funds accounted for 37 per cent of the total cash held by all mutual funds; while the entire Reliance family of funds accumulated 42 per cent. Though the top five Reliance funds have maintained cash of 27 per cent 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 per cent of the industry's assets.
The basic objective of maintaining high cash in an equity funds is that it protects investors against market downswings. But has this explanation held ground in this case? Let's look at the figures. An average diversified equity fund has shed 36 per cent in these seven months. The top five Reliance funds, which we have mentioned above, have lost 28 per cent on an average. So they high cash levels have succeeded in shielding investors from the market downturn.
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