1. Is the problem of plenty of excess cash hurting even smaller mutual funds?

Is the problem of plenty of excess cash hurting even smaller mutual funds?

Even as we see burgeoning inflows into the mutual fund industry, with over Rs 22.41 lakh crore garnered by the 42-player industry as at the end of January 2018, a few fund managers say that they’re sitting on piles of cash for want of opportunities.

By: | Published: February 12, 2018 3:57 PM
Sebi, Sebi rule, mutual finds, HUF, debt mutual fund schemes, Categorisation and Rationalisation of Mutual Fund Schemes As at the end of January-18 the total AUM of the mutual fund industry stood at Rs 22.41 lakh crore. (Image: Reuters)

Even as we see burgeoning inflows into the mutual fund industry, with over Rs 22.41 lakh crore garnered by the 42-player industry as at the end of January 2018, a few fund managers say that they’re sitting on piles of cash for want of opportunities. In an interview to ET Now, PPFAS mutual fund, which has a total of Rs 1,024.24 crore AUM as at the end of January 2018, says that they continue to hold a staggering 20% cash in their portfolio. “It’s better to hold cash than invest in expensive companies,” Raunak Onkar of PPFAS Mutual Funds told ET Now in an interview.

Instances of fund managers prefering to hold cash rather than investing into the capital markets is not new. In September-17, when the inflows had touched near all-time high of more than Rs 20,000 crore, Nilesh Shah of Kotak AMC said that it is a challenge for the mutual fund industry to handle record inflows in the equity mutual funds for the month of August. In conversation with CNBC TV18, he had said “It’s a challenge to manage Rs 27,000 crores of investments in a month. We are focused on very niche segment of the market.”

For want of opportunities to invest, DSP BlackRock Micro Cap Fund had shut the doors to fresh investments. In April-17, Motilal Oswal Asset Management had stopped accepting new cash for its Next Trillion Dollar Opportunity Strategy, which mostly invests in small and mid-cap stocks, because the ongoing rally had made valuations untenable, according to a bloomberg report.

But what is noteworthy is while DSP BlackRock Micro Cap Fund has an AUM of above Rs 6,400 crore PPFAS mutual fund, which has a total of Rs 1,024.24 crore AUM is also facing the problem of plenty. Notably, while the domestic stock markets have seen a huge correction in the last week, mutual fund managers say that the ongoing rout is still not over, and expect further volatality in the markets. “We are just beginning the fall..hard to know how far this market will fall, but if largecaps fall around 15 per cent and smallcaps and midcaps fall around 30 per cent, we get to some semblance of sanity on valuations,” Saurabh Mukherjea told ET Now last week.

On similar lines, S Naren of ICICI Prudential Mutual Fund told ET Now that despite the correction last week, he sees smallcaps and midcap stocks appear to be overheated. “Even if you had a 3.5 per cent correction, I would say one-year return is more than 18 per cent. So, the markets are not cheap at this point of time to justify aggressive investing. They are only cheap to the extent that you can do defensive investing in equities, which means that even today small caps are a strict no-no and midcaps are also almost a strict no-no,” S Naren told ET Now. 

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