Equity MFs sit on cash as market stays volatile

Mumbai, April 19 | Updated: Apr 20 2005, 05:41am hrs
Thanks to the volatility in the markets, the mutual fund (MF) industry is sitting on piles of cash in their equity-dedicated schemes. Existing schemes are holding cash of 8-12%, which is more than double than the normal levels of 3-4%. On the other hand, there is over 61% (nearly Rs 4300 crore) of total amount collected in the five recently-concluded equity scheme IPOs in March, which remains to be invested in the equity market.

Figures provided on the website of Securities and

Exchange Board Of India (Sebi) show that while mutual funds carried out gross buying of Rs 2,196 crore in the month of April (till date) and sold

Rs 1549 crore in the same period. Suhas Naik, director-equities at ING Vysya Mutual Fund said: We are maintaining more than 10 to 15% cash levels in our equity schemes over the past fortnight, because we had anticipated the scope for correction after the recent rally. This is an industry-wide phenomenon now, as the IPO money is yet to be deployed.

According to fund managers, it is wise to maintain high cash levels, as there is not enough depth in the markets as of now. Thus, while recent IPOs have witnessed some hefty collections, they have not deployed the money right away. Industry sources say that high cash levels are being maintained in the existing equity schemes because fund houses had expected a correction in these times and subsequent redemption pressure. The benchmark Sensex has witnessed a slide of over 350 points in the last one week.

Sashi Krishnan, CEO Cholamandalam AMC said in this context: We have cash levels of nearly 8% in our mid-cap fund, because of jittery market conditions. Its all a question of judicious bottoms-up approach in stock- picking, and to stay with cash is a hedging mechanism.