Widely read:
Aprajita Anushree/AI-Generated Image
Some equity mutual funds are keeping more cash on the sidelines, an unusual stance at a time when foreign institutional investors (FIIs) turned net buyers in March and retail investors are going steady.
While the average cash holding across equity mutual funds has climbed to slightly over 5 per cent of their net assets, there are some fund houses who aren’t fully invested in the Indian market right now.
Who’s holding the most cash?
PPFAS Mutual Fund (Parag Parikh) leads the pack with a 21.9 per cent cash holding. In other words, the fund house is yet to invest over Rs 23,450 crore of investor money in the market. This isn’t out of character for Parag Parikh. Observers of the fund house would know that it has consistently beefed up its cash levels in recent months. In fact, its cash position has increased from 15.1 per cent in FY24.
Samco Mutual Fund and Motilal Oswal Mutual Fund are the next in line, with cash holdings of 17.3 per cent and 12.7 per cent, respectively.
Why are fund managers sitting on cash?
There’s no single reason, but several key factors may be driving this strategy. Some of the reasons are as follows:
1. High valuations
With an average P/E ratio of 22.44 , the Indian market (Sensex) is among the most expensive globally. While that’s below the US (31.25 ) (NASDAQ 100), it’s significantly higher than China (14.17 ) (CSI 300) (data as of May 27, 2025)
2. Lack of conviction ideas
In frothy markets, finding strong businesses at reasonable prices becomes harder. Rather than compromise, managers prefer to wait.
3. Global uncertainty
With the global interest rate trends still evolving, some managers are preserving cash as a buffer against volatility.
4. Profit booking
Some equity funds must have booked profits and would now be in a wait-and-watch mode before deploying capital.
Should investors be worried?
Not really. In fact, a moderate cash position can be a sign of discipline.
- It can be a sign of prudence. Choosing to wait rather than chase momentum demonstrates a fund manager’s commitment to risk management.
A case in point is PPFAS’s flagship flexi-cap fund. Despite not investing a chunk of its money in the market, the flexi-cap fund has summarily outperformed the Indian market (BSE 500 TRI).
However, critics argue that higher cash calls can be tricky. It may look smart if it works, as it has done for PPFAS’s funds in the past, but if it doesn't, it can backfire. That said, cash calls in a frothy market can also act as a cushion when stocks tank.
- It’s tactical, not permanent. Cash positions often reflect short-term caution, not necessarily a bearish view of markets.
We’ll cite Parag Parikh’s example again. In a previous interview with Value Research, Rajeev Thakkar, CIO and Director at PPFAS, explained the fund house’s philosophy: “We try to invest whatever money is there with us, and when we don't find great opportunities, some money lies in the bank account. If you have some money in your bank account, you can take action. However, if you consistently invest all your money, you won't be able to take advantage of any attractive opportunities. Therefore, we encounter numerous such opportunities throughout our journey.”
Which means that some fund houses prefer to keep their powder dry for the right moments.
Our take
At Value Research, we don’t judge a fund based on short-term cash positions.
We believe what truly matters is:
- The fund manager’s conviction and discipline
- Performance across multiple market cycles
- The consistency of the investment approach
- Alignment with your long-term goals and risk profile
A temporary rise in cash is not a reason to exit a good fund. In fact, it could be a sign that your fund manager is doing exactly what they should: Being selective, patient and thoughtful with your money.
If you're unsure which funds suit your needs, check out the Value Research Fund Advisor. Our analysts handpick funds based on time-tested criteria — not just recent returns or temporary cash positions.
Also read: 11 funds are losing their faith in this red-hot market. Gutsy or foolish?
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
For grievances: [email protected]
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
