Mutual funds in India are now sitting on their largest cash reserves in 15 years, as of March 2025. This move reflects a more cautious approach by fund managers, who are opting to hold cash instead of investing aggressively in a market that’s hovering near record highs.
Why Are Fund Managers Increasing Cash Reserves?
According to Elara Securities, cash holdings across active mutual fund schemes have risen notably similar to what was observed during the market conditions of 2011 and 2018. Analysts point out that this isn’t due to a shortage of funds, but rather the lack of appealing investment options given the current high valuations.
Adhil Shetty, CEO of Bankbazaar.com, notes that fund managers are waiting for more favorable risk-reward conditions. “With fewer fundamentally sound stocks available at justifiable prices, many managers prefer holding cash rather than investing in overpriced equities,” he said.
Looking Back: What Did We See in 2011 and 2018?
In both 2011 and 2018, mutual funds held elevated cash levels, which were followed by strong rallies in the Nifty index. However, these upswings were mostly driven by large-cap stocks, with mid and small-cap segments offering limited contributions.
This pattern suggests that while headline indices may rise, the broader market participation could remain narrow.
Latest Numbers: Cash Holdings Still Rising
By February 2025, large-cap mutual fund schemes had cash levels at 4.8% the highest since June 2023.
Overall, mutual fund cash reserves climbed to ₹17,430 crore in March 2025, up from ₹16,215 crore in February. The trend began around June 2024, when markets saw a mild correction, prompting AMCs to steadily increase their cash positions.
What Should Investors Do?
- Stay calm: High cash reserves reflect caution, not necessarily a negative outlook.
- Be patient: Fund managers are likely waiting to deploy capital when valuations become more reasonable.
- Stick to your plan: If you’re investing via SIPs, continue without interruption trying to time the market is usually unproductive.
- Diversify smartly: Maintain a balanced portfolio across large-cap, mid-cap, and debt funds, depending on your risk profile.
