Series 124 – Mutual Funds’ Cash Balances – The Silent Signal

Mutual funds often hold a portion of their AUM in cash and cash equivalents to manage liquidity, meet redemptions and time fresh allocations.

The aggregate cash levels across categories tell us how fund managers perceive the risk-reward balance in equity markets.

From 6.5% in April 2025 to 5.1% in August 2025, overall cash holdings have declined steadily.

This suggests managers are becoming more confident in deploying capital despite volatile global cues.

• Flexi Cap & Value/Contra Funds still run the highest cash (8–9%), reflecting their mandate to be tactical.
• Small Cap Funds consistently hold elevated cash (~7%), a buffer against sharp drawdowns in a high-risk segment.
• Large Cap & Multicap Funds have reduced cash from ~5%+ to ~3.7%, indicating higher conviction in core large-cap names.
• ELSS & Dividend Yield Funds now run the leanest cash levels (close to ~3%), consistent with their structure.

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