In the current market scenario, can a fund manager sell equities and sit on some cash, or are they compulsorily required to remain invested in equities only?
- Mayank Khemka
If we go strictly by the investment mandate which is written in the scheme-information document of equity funds, then the fund managers do have the flexibility to move a portion of their assets in cash and equivalents. That's what the stated allocation permits them to do. But in reality, the experience is that very few fund managers move into cash and most of them prefer remaining fully invested. So barring say 2-5 per cent of cash allocation that may be there in a fund in a steady state, fund managers deter from taking any active cash calls beyond that. In fact, in some funds, one sees a significant build-up of cash, time and again. However, fund managers don't really attribute it to an active call they are taking on the markets. Instead, they say that the cash build-up is due to continuous inflows in the fund and they are unable to find enough promising stocks at the right price. This typically happens in the runaway markets where a fund manager may not find enough opportunities at the right price to deploy all those incremental inflows, which can lead to a build-up of cash in the portfolio. Then, this cash subsequently gets invested over a period of time.
Thus, a lot of fund managers do not take a very active cash call and in fact, this is a lesson for retail investors that if fund managers avoid trying to time the markets, then for retail investors, the chances of hitting success by actively trying to time the markets is even slimmer perhaps.