Mutual funds reduced their cash holdings to a 16-month low in March, deploying capital into equities during a sharp market correction triggered by rising geopolitical tensions and elevated crude oil prices.
According to data from ACE MF, cash holdings fell by Rs 24,319 crore, or 12 per cent, to Rs 1.86 lakh crore in March from Rs 2.1 lakh crore in February. Cash as a proportion of assets under management (AUM) also declined to a four-month low of 4.73 per cent, compared with 4.86 per cent in February and 5.76 per cent a year earlier.
The decline reflects active deployment, with nearly 60 per cent of fund houses utilising cash reserves to accumulate stocks during the correction, while the remainder either increased or maintained their cash levels.
Markets remained under pressure during the month, as geopolitical tensions and rising oil prices raised concerns over inflation, growth and the current account deficit. Benchmark indices Sensex and Nifty 50 declined 11.5 per cent each, while broader indices such as the BSE MidCap 150 and BSE SmallCap 250 fell around 10 per cent. More than half of listed stocks touched their 52-week lows during the sell-off.
Several large fund houses reduced cash holdings significantly. SBI Mutual Fund lowered its equity cash position to Rs 27,464 crore from Rs 34,704 crore in February, while ICICI Prudential Mutual Fund cut holdings to Rs 17,290 crore from Rs 23,876 crore. Motilal Oswal Mutual Fund also reduced cash to Rs 3,124 crore from Rs 6,722 crore.
In contrast, some fund houses chose to increase liquidity buffers. Nippon India Mutual Fund raised cash holdings to Rs 7,811 crore from Rs 6,158 crore, while Axis Mutual Fund increased its cash position to Rs 16,470 crore. Edelweiss Mutual Fund also reported a rise in cash holdings to Rs 1,505 crore.
Despite the decline, overall cash levels remain relatively elevated, indicating that fund managers continue to retain some flexibility amid ongoing market uncertainty.