Cash holdings rise in some MFs
Cash holdings rise in some MFs
Mutual fund (MF) managers, typically, raise their cash exposure when they expect the market to fall or the risk-reward situation is not favourable. However, things seem different this time. Cash holdings seem elevated in some funds, although the benchmark indices are hovering near all-time highs.
For instance, large-cap funds such as SBI Magnum Equity and Franklin India Bluechip were holding a little more than six per cent in cash as of October, according to data from MF tracker Morningstar India. Mid-cap funds such as UTI Mid Cap, Reliance L/T Equity, DSP BlackRock Micro Cap Reg, SBI Magnum Global, IDFC Sterling Equity and Reliance Small Cap held between 7.5 per cent and 15 per cent in cash. As on December 2013, the cash holding in most of these funds stood between one to seven per cent. Most of these funds manage anywhere between Rs 1,200 crore and Rs 2,700 crore by way of assets.
Taking cash calls is a dilemma for many equity fund managers, especially in times of volatility. It might go against the fundamental tenet of staying invested at all times but is a strategy employed by fund managers — either to protect the downside in the event the market falls or to avoid paying a high price for a stock.
"Some fund managers are choosing to book profits and are holding cash, hoping to reinvest when the market corrects. This is the chief reason cash levels in some equity funds have risen in the past two months," says Nisreen Mamaji, a certified financial planner.
"We have not taken a call on the market levels. However, several of the individual stocks in our portfolio got expensive, triggering their sell limits in the past few months," said Nilesh Shetty, associate fund manager, equity, Quantum MF. For example, the fund has booked profits in engineering stocks such as Larsen & Toubro and Cummins India in recent months. Shetty said the fund had chosen not to plough back the cash in the market as the valuations seem expensive at this point. "Our mantra has always been to identify the right business and then pick the right stock at the right valuation. In other words, buy cheap and sell high," he said. The Sensex is currently around 28,000 and up about 30 per cent in the year till date.
Should investors, then, worry about the cash holdings of their funds? Experts suggest they do homework before investing in a fund and study its record in taking cash calls. Such calls could backfire in a rising market but can protect the downside in a falling market. Once they invest in a fund, they should leave the cash calls to the fund manager's discretion. "An investor should worry only if the fund is holding more than 10 per cent per cent of its assets in cash. In an ideal world, a pure equity fund should stay fully invested," said Vidya Bala, head of MF research at Fundsindia.com.
Interestingly, several large funds are also choosing to stay almost fully invested. HDFC Equity and HDFC Top 200, which together manage about Rs 30,000 crore by way of assets, held less than one per cent cash as of October. Other large ones such as DSP BlackRock Top 100 Equity Regular Growth (Rs 3,475 crore), UTI Opportunities (Rs 5,124 crore) and Reliance Growth (Rs 5,372 crore) had less than two per cent in cash holdings.
Business Standard
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Mutual fund (MF) managers, typically, raise their cash exposure when they expect the market to fall or the risk-reward situation is not favourable. However, things seem different this time. Cash holdings seem elevated in some funds, although the benchmark indices are hovering near all-time highs.
For instance, large-cap funds such as SBI Magnum Equity and Franklin India Bluechip were holding a little more than six per cent in cash as of October, according to data from MF tracker Morningstar India. Mid-cap funds such as UTI Mid Cap, Reliance L/T Equity, DSP BlackRock Micro Cap Reg, SBI Magnum Global, IDFC Sterling Equity and Reliance Small Cap held between 7.5 per cent and 15 per cent in cash. As on December 2013, the cash holding in most of these funds stood between one to seven per cent. Most of these funds manage anywhere between Rs 1,200 crore and Rs 2,700 crore by way of assets.
Taking cash calls is a dilemma for many equity fund managers, especially in times of volatility. It might go against the fundamental tenet of staying invested at all times but is a strategy employed by fund managers — either to protect the downside in the event the market falls or to avoid paying a high price for a stock.
"Some fund managers are choosing to book profits and are holding cash, hoping to reinvest when the market corrects. This is the chief reason cash levels in some equity funds have risen in the past two months," says Nisreen Mamaji, a certified financial planner.
"We have not taken a call on the market levels. However, several of the individual stocks in our portfolio got expensive, triggering their sell limits in the past few months," said Nilesh Shetty, associate fund manager, equity, Quantum MF. For example, the fund has booked profits in engineering stocks such as Larsen & Toubro and Cummins India in recent months. Shetty said the fund had chosen not to plough back the cash in the market as the valuations seem expensive at this point. "Our mantra has always been to identify the right business and then pick the right stock at the right valuation. In other words, buy cheap and sell high," he said. The Sensex is currently around 28,000 and up about 30 per cent in the year till date.
Should investors, then, worry about the cash holdings of their funds? Experts suggest they do homework before investing in a fund and study its record in taking cash calls. Such calls could backfire in a rising market but can protect the downside in a falling market. Once they invest in a fund, they should leave the cash calls to the fund manager's discretion. "An investor should worry only if the fund is holding more than 10 per cent per cent of its assets in cash. In an ideal world, a pure equity fund should stay fully invested," said Vidya Bala, head of MF research at Fundsindia.com.
Interestingly, several large funds are also choosing to stay almost fully invested. HDFC Equity and HDFC Top 200, which together manage about Rs 30,000 crore by way of assets, held less than one per cent cash as of October. Other large ones such as DSP BlackRock Top 100 Equity Regular Growth (Rs 3,475 crore), UTI Opportunities (Rs 5,124 crore) and Reliance Growth (Rs 5,372 crore) had less than two per cent in cash holdings.
Business Standard
Please share your feedback.
Email » rajesh.ipo@smcindiaonline.com
Sent from BlackBerry® on Airtel
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