The Hindu Business Line : Funds did not switch to cash ahead of declines

As a small investor, you may not have been savvy enough to switch into cash just before the market meltdown. Even managers of several equity mutual funds didn’t do so either.

Trends over the preceding two months, reveals that equity mutual funds, which held large cash positions in end November, too stepped up investments in stocks prior to the recent decline. Quite a few funds, which received fresh inflows, actually reduced their cash positions between end-November and end-December 2007.

Cash holdings

DBS Chola Advantage Fund, which held 44 per cent in cash during the month of November, in December reduced the cash holdings to 20 per cent. JM Basic Fund, a top performing fund which has seen its assets surge threefold in less than six months, had pruned its cash position from 19 per cent to just 2 per cent in December. Other funds, which trimmed cash positions were Sundaram Select Focus, Magnum Equity Fund and UTI Energy Fund.

On the other hand, funds such as Reliance Media and Entertainment and Reliance Banking stepped up their cash position in comparison to previous month. Birla Midcap Fund had fresh inflows of 28 per cent during December and preferred to hold 21 per cent in cash.

Net buyers

The cash positions held by mutual funds in end-December were probably invested in the first couple of weeks in January as domestic mutual funds remained net buyers to the tune of Rs 257 crore till January 18.

Provisional data for January 21 shows that domestic institutions pumped in over Rs 3,300 crore into stocks on that day and that is likely to include a mutual fund component as well. In contrast, FIIs were net sellers to the tune of about Rs 6,778 crore till January 21.

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