Fund managers are hoarding cash. Are they bracing for a market correction?

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Subscribe to enjoy similar stories. As India's equity markets soar, mutual fund managers are becoming increasingly cautious. Despite a surge in investor inflows, they are opting to hold on to cash, waiting for more opportune moments to invest amid market volatility and overvalued assets.

This cautious approach, however, comes at a cost to investors, who miss out on potential returns as the cash lies idle while they continue to pay fees on the full investment. As of August, India's top 20 equity mutual funds, managing ₹4.08 trillion in assets, held an average of 6% in cash—up from 4.4% in January. Quant Mutual Fund led with a 19.1% cash holding, followed by PPFAS at 17.6% and Motilal Oswal at 13.5%, according to a report by Motilal Oswal Financial Services.

This marks the highest cash level since May 2021, when cash holdings had bottomed out at 3.2%, Motilal Oswal Financial told Mint. While this elevated position is significantly higher than historical averages, it’s not entirely unprecedented. Some portfolio managers have taken cash positions as high as 50-70%, according to industry experts. In past downturns, such as during the dot-com bubble and the 2013-2014 quantitative easing period, mutual funds held similar or larger cash reserves, pointed out Yash Poddar, co-principal and chief investment strategist at family office Viansh Ventures.

What’s different this time is the rapid acceleration of investment inflows, raising questions about when and where this capital will ultimately be deployed. Equity mutual funds have been witnessing a steady rise in inflows, with August bringing in ₹38,239.16 crore, a 3% increase over July’s ₹37,113.39 crore. Between April and June, equity mutual funds brought in ₹94,222.27 crore—far