Fund Houses Sit On War Chest Of Rs 2L Cr, Ready To Pounce As Mkts Improve

Mumbai: Fund houses are sitting on a war chest of Rs 2 lakh crore. The reason is that they want to keep some of their ammunition ready so that they could enter whenever there is a correction in the market.

However, certain fund houses claim that they do not take cash calls in their mutual fund businesses. But they do take cash calls in businesses like PMS and AIF.

This includes Rs 1.25 lakh crore of cash with open-end schemes and fresh inflows. Also, sitting on the sidelines is another significant tranche of Rs 60,000 crore to Rs 80,000 crore of balanced advantage funds (BAF) and multi-asset funds (MAF), if the markets were to go down further.

However, there are a few fund houses which claim to have such a chest fund not more than 2-5 per cent at any point in time.

Talking to Bizz Buzz, Ajit Menon, CEO, PGIM India Mutual Fund said, “As far as PGIM India MF is concerned, we don’t take cash calls in our mutual fund segment. We do take cash calls in PMS and AIF businesses.”

At present, the total assets under management (AUM) of these schemes are at Rs 3 lakh crore. The CEO added that if the market goes down, these schemes will have to increase the equity portion from 50 per cent to 80 per cent, on average.

In September-end, mutual funds were sitting on Rs 1.8 lakh crore of cash. In October, however, as FIIs stepped up their selling, mutual funds invested heavily to stem the fall. So far, FIIs were net sellers of Rs 79,693 crore. At the same time, DIIs (including mutual funds) have put in Rs 97,091 crore.

Overall, the benchmark Nifty and Sensex have fallen over 5 per cent (after Monday’s bounce back) since the beginning of the month. Broader markets have fared worse, with both mid-cap and small-cap indices falling over 7 per cent.

G Pradeep Kumar, ex-CEO of Union Mutual Fund and an industry expert says, “There are a few fund houses or fund managers who had taken a call some time back that given the noted valuation which are considered to be expensive, some of them had taken a high cash exposure to the tune of 15-20 per cent so that if there was any correction in the market, they could protect their portfolio and also they could invest at a lower level.”

However, technically fund managers don’t take very high cash exposure because the mandate is normally to save investors. And the risk is that if you take an exposure and the market goes up, your performance may look really bad.

The current situation is quite similar to FY22 and FY23, when FIIs were net sellers to the tune of Rs 1.3 lakh crore and Rs 44,000 crore, respectively. DIIs had stepped in both the years and bought shares of Rs 2.2 lakh crore and Rs 2.5 lakh crore, respectively. In FY24, both FIIs and DIIs put in over Rs 2 lakh crore each.

This financial year, though FIIs have turned net sellers in recent months, they continue to be net buyers of Rs 4,000 crore, whereas DIIs have invested over Rs 3.3 lakh crore.

Most believe both retail investors and high-net-worth individuals have been quite smart in the last few years. While they have not been shy about booking profits, they have also not stopped their SIPs and continued to regularly invest money in the market.

Mutual funds contribute over 80 per cent of investments made by DII, said industry experts. The others include players like insurance companies, pension funds, and banks.