Equity funds pile up cash

With the stock markets being on a downturn for most part of the year, many asset management companies (AMCs) are sitting on huge piles of cash or cash equivalents, with some equity-oriented funds holding as much as 40 per cent of their assets in cash, a Crisil report pointed out.

The country's largest fund house, Reliance Mutual Fund, is holding an average of over 33 per cent cash in three of its funds - Reliance Equity (39.25), Reliance Natural Resources (32.30) and Reliance Diversified Power (30.13).

Defending the move, Reliance Mutual Fund Chief Executive Officer Vikrant Gugnani said, "We are sitting on over 20 per cent cash since December as we had anticipated the correction. We have now started deploying the money back into the stock market, but it takes time to pump in Rs 6000-8,000 crore (Rs 60-80 billion)."

Both DBS Chola and UTI Mutual Fund also have a high cash component of over 25 per cent in some of their funds. UTI Mutual Fund Chief Investment Officer Anoop Bhaskar said, "We have increased our cash levels by 25 per cent (over and above the normal holding of 7-8 per cent), in case investors opt for redemption."

SBI Mutual Fund Chief Investment Officer Sanjay Sinha said the increased cash component is due to the lack of opportunities in the current market and also give them liquidity to meet redemption pressures.

Mutual fund experts were of the opinion that whenever there is a correction after a very sharp decline in the markets, investors try and minimise their losses by exiting their existing funds.