Cashing out

One of the easiest ways to reduce risk when the stock market appears too hot to handle is to simply book profits on your stocks and sit on cash instead (you needn't head for your mattress, you can move the money into liquid funds). But this is easier said than done because you have to answer two questions first: when to take this cash call and how much of your portfolio to move into cash. A few equity funds in India have a built-in mandate to take cash calls in their portfolio. Schemes with this mandate usually cap their cash/cash equivalents at 30 to 35 per cent. Studying the cash levels at equity funds in the Value Research database, we find that funds that have this mandate have raised their cash positions in the last one year. For instance, Edelweiss Equity Opportunities Fund, which can invest up to 35 per cent in cash/debt, has steadily raised its cash position from 3 per cent in September 2016 to 11 per cent by March 2017 and further to 16 per cent by September 2017. Invesco India Dynamic Equity Fund saw its cash levels dip from 26 per cent in September 2016 to 16 per cent in March 2017, only to climb back to 34 per cent by September 2017. Quantum Long Term Equity Fund has seen its cash levels rise from 13 per cent in September 2016 to 21 per cent in September 2017. While these funds have the mandate to raise their cash levels to 30 or 35 p