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One should strike while the iron is hot, and given that the stock market has been red hot, equity funds are piggybacking on this epic run. Not all equity funds, though. Some have deliberately cooled off and are keeping their powder dry for the right time.
What we mean is that there is a tribe of equity funds that are holding on to cash or investing in debt despite the market scaling new peaks. While these funds are accepting money from investors right now, they are not investing it in stocks. Or at least not as much as one would think they should.
Is it a bad thing? Not if you are a part of these gunshy schemes. Both Neil Parag Parikh, chairman and CEO of PPFAS Mutual Fund , and George Thomas, fund manager at Quantum , struck a similar note of caution, saying the "starting valuations are not so cheap" and that many companies have "crossed our fair value estimates" in the current go-go market.
The stashed cash XI
These 11 diversified equity funds have cash holdings of more than 10 per cent
| Fund name | Current cash holding (%) | Median cash holding (%) |
|---|---|---|
| Parag Parikh Flexi Cap | 17.6 | 16.0 |
| Parag Parikh ELSS Tax Saver | 16.7 | 17.1 |
| Quantum Small Cap | 16.5 | 17.3 |
| Quantum ELSS Tax Saver | 15.2 | 14.1 |
| Quantum Long Term Equity Value | 14.0 | 13.1 |
| ICICI Prudential Value Discovery | 13.9 | 11.6 |
| Groww Value | 13.5 | 10.7 |
| ICICI Prudential India Opportunities | 13.0 | 12.0 |
| ICICI Prudential Smallcap | 11.2 | 10.3 |
| Bandhan Small Cap | 10.8 | 10.1 |
| HDFC Focused 30 | 10.1 | 10.3 |
| Note: Current holdings as of August 31, 2024. Median cash and debt holdings of the past six months. | ||
"We are mindful of what price we pay to buy a stock. We are taking our time to hunt for bargains in this market. There are some neglected sectors/stocks where we have added to our portfolio," said PPFAS's Parikh, whose schemes are currently holding back almost a fifth of investors' money for the opportune moment.
Until then, he will "patiently wait for the valuations to reach our comfort zone".
Quantum's Thomas concurred. "In the current market setup, there are very few names which are closer to our buy limit," he said, adding that they'll deploy the cash only when we see a "material market correction".
Our take
The idea of sitting on cash and not participating in this rocketing market is not wild. Nor is it unprecedented. It's just a matter of different investment philosophies.
While many fund houses may have a fear of missing out (FOMO) on the current bull run, some may choose to sacrifice the current rip-roaring returns and sit on the fence, waiting for the right time to strike.
Also read: Sitting on dry powder
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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