Cash levels for equity mutual funds have seen an uptick in the past few months amid lofty valuations.

Total cash set aside by such schemes rose to ₹1.34-lakh crore at the end of April — 22 per cent higher than that at the end of December last year, data compiled by Fisdom Research show. As a percentage of total equity assets, cash has risen 37 basis points to 5.42 per cent during this period.

Twenty four out of the 451 schemes had more than ₹1,000 crore in cash each. Fifty one schemes had cash in excess of 10 per cent and 131 schemes over 5 per cent.

Parag Parikh Flexi Cap Fund held the most cash totalling ₹9,457 crore, 14.8 per cent of its assets. HDFC Flexi Cap Fund, ICICI Pru Bluechip, SBI Contra, HDFC Mid-Cap Opportunities, and ICICI Pru Value Discovery held over ₹5,000 crore in cash. Each of these schemes have increased their cash component in the last four months.

Nifty 50 is trading at 20.6 times its FY2025 estimated earnings per share. The gauge has moved up 4 per cent in the four months to April. The market cap to GDP ratio was at 132 per cent at the end of April, much higher than the long term average of 85 per cent.

Cash calls

The decision to increase cash goes against the fundamental tenet of staying invested at all times, but is employed either to protect the downside in the event the market falls or to avoid paying a high price for a stock. Most equity schemes don’t typically take active cash calls on the assumption that investors have done their asset allocation and want to remain fully invested.

Cash calls also depend on the type of schemes under consideration. Mid- and small-cap schemes, for instance, may have higher cash holdings compared with large-cap schemes as these are less liquid and high cash may prove useful during market corrections and large redemptions.

Taking large cash calls has backfired in the past. Fund managers sitting on high cash in 2008, for instance, were caught off guard when the markets rebounded in 2009.