The Hindu Business Line : Mutual funds play it safe with cash

Even as the benchmark index, Sensex, breached 14,000 intra-day, on Tuesday, mutual funds with huge cash in their kitty, appear to be waiting for the market to fall further to pick up stocks at lower levels.

Analysts say lack of positive signals and fears of possible redemption pressure in the near future seem to be keeping mutual funds from making investment decisions.

“Mutual funds seem to be sitting on huge cash as they might need some liquidity to service redemptions which might happen in volatile times. On the other hand, there is lack of good opportunity to deploy funds," said Mr Srinivas Jain, Chief Marketing Officer and Senior Vice-President, SBI Mutual Fund.

However, there are select funds cherrypicking at lower levels on Tuesday, with domestic institutions including mutual funds buying sticks worth (net) Rs 476 crore.

BSE Sensex fell 1.31 per cent to close at 14106.58.

Mutual funds are waiting to invest at lower levels, as there are chances of the markets falling further, said Mr Alex Matthew, Head of Research, Geojit Financial Services.

By May-end, over 292 equity schemes that were in operation had a total cash position of close to Rs 23,240 crore according to data from NAV India. At the end of April, equity schemes had cash levels of Rs 15,615 crore.

The assets under managements for the month ended May was Rs 6,00,266 crore, while the same for April was Rs 5,69,686 crore.

Around 40-50 per cent of the total assets under management of the industry are in equity schemes. Out of this, if the industry is holding around 10-15 per cent in cash, it is not very high considering the turbulence in markets, he added.

According to a research report by Sharekhan Securities, for June 2008, the top 10 cash-rich funds, include UTI Spread Fund, Kotak Equity Arbitrage Fund, Reliance Natural Resources Fund, Birla Sun Life Pure Value Fund, Reliance Quant Plus Fund, ICICI Prudential Blended Plan, IDFC Fixed Maturity Arbitrage Fund-s1 and ING Dynamic Asset Allocation Fund.

These are some of the cash rich equity diversified funds waiting for right valuations to invest, the report said.

In fact, fund houses sitting in cash will reduce their mark-to-market losses, and the larger the sums of cash, the more insulated they are, said an analyst. Sensex lost more than 30 per cent since January 2008.

Not much redemptions

Investors too seem to be playing it safe, having understood that mutual fund investments are for the long term, and so there is not much redemption happening, say analysts.

“Also in most cases where the NAVs of schemes have fallen by around 50 per cent, the investors will not want to exit at such low levels”, observed Mr Rakesh Goyal, Head-Distribution, Bonanza Portfolio.

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