Every mutual fund scheme comes with a mandate to invest in certain types of securities. And at all times too. But each mutual fund scheme is allowed a small portion of its portfolio in cash. This is allowed to meet repayments or any “buy” opportunities that the fund may encounter on any given day.
Generally, equity funds hold cash between 1% and 5% of a fund’s corpus, although some funds may contain up to 7-10% of its corpus in cash. Some funds prefer to keep more of their portfolios in cash because their mandate allows them to hold high levels of cash if, according to their analysis, there are no good stocks available with desirable valuations. Few others, like dynamic equity funds, also have more cash if they feel equity markets are overheated.
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Equity funds tend to have low cash levels, as these schemes are vehicles for long-term investments. Debt funds have a higher allocation to cash and cash equivalent instruments, as investors tend to invest here for the short term and therefore there is a greater possibility of repayment in debt funds. Whether or not a fund should have cash is a subjective decision.
Here is a list of funds with the highest cash levels (data from valueresearchonline.com). But keep in mind that choosing a fund based on your cash holdings is not advisable. Instead, you should evaluate parameters such as long-term returns, portfolio risk, and the fund manager’s strategy.
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