The Hindu Business Line : Equity funds trim cash levels in October

BL Research Bureau The over 4,300 point rally in the Sensex after the Fed rate cut in September probably surprised most individual investors. Portfolios of mutual funds in this period show that fund houses too were probably taken by surprise by the speed of this rally.

Going by their September portfolios, equity funds were sitting on substantial cash positions by end of the month.

To name a few funds — UTI–GSF–Petro Fund held close to 59 per cent of its assets in cash in end September. Schemes from Reliance Mutual Fund - Reliance Diversified Power Sector, which has seen assets surge in the past six months from Rs 932 crore to Rs 2,312 crore, held close to 25 per cent of its portfolio in cash in the same period. Reliance Media and Entertainment (22 per cent cash), Reliance Banking Fund (17.8 per cent ) and Reliance Tax Saver(17.3 per cent), which declared a dividend of 10 per cent in the November, also held significant cash.

cash positions

Reliance Regular Saving Fund, Reliance Equity Advantage Fund and Reliance Equity Fund held cash positions between 13-17 per cent of their assets then.

Apart from Reliance funds, schemes from DBS Chola also featured significant cash.

DBS Chola Global Advantage, DBS Chola Opportunities and DBS Chola Midcap Fund held cash levels of between 22-25 per cent. Fund houses usually like to limit their cash positions to 5 per cent in their equity funds, in order to meet liquidity requirements and redemption demands. Not being fully invested involves an opportunity loss, if markets rally.

However, having remained in cash in end September, equity fund managers seem to have been quick to deploy these funds during the subsequent rally.

The sharp pullback in the stock markets between October 23 and 29, after the correction linked to the PN issue, appears to been driven largely by domestic mutual funds. The SEBI data shows mutual funds pumping in close to Rs 2,600 crore into equities between October 23 and 29.

Mutual funds in fact, made net purchases in equity on every one of these days, even as FIIs alternated between buying and selling. This had the effect of significantly trimming cash levels in portfolios by end-October, relative to the previous month.

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