Cash holdings of mutual funds dropped 12.12 per cent to Rs 15,800 crore in July from Rs 18,000 crore in June, indicating a rise in buying activity by fund houses in the equity market. The average cash holdings of fund houses fell to 10.2 per cent in July from around 14 per cent in the previous month.

According to data available with the Securities and Exchange Board of India (Sebi), mutual funds made net purchases of Rs 1,825 crore in equities in July compared with Rs 839 crore in June. In February, when the cash holdings of mutual funds touched Rs 20,000 crore, fund houses were net sellers to the tune of Rs 1,495 crore.

Industry experts said with a positive equity market rally, cash levels are bound to decrease. The Sensex has jumped from 8,110 on March 9 to 15,688 at the close of trading on August 25. However, cash holding is also dependent on the investment strategy of a fund, they said.

Naval Bir Kumar, managing director of IDFC Mutual Fund, said cash level is not purely a function of equity market movement. “We, in IDFC Mutual Fund, don’t believe in timing the market and our cash level does not necessarily shrink with every upward market movement. If we have redemption and dividend commitments to fulfill, we will have cash in hand, irrespective of the equity market movement,” he said.

Since February, when cash holdings of mutual funds reached Rs 20,000 crore, there has been a continuous drop in cash reserves of fund houses.

In case of open-ended equity funds, fund houses showed an average cash holding of around 7 per cent in July. However, some fund houses have high cash holdings in their open-ended equity schemes, with Escorts Mutual Fund leading the pack with around 40 per cent of its asset under management (AUM) in cash. Reliance Mutual Fund has the second highest percentage (17.45 per cent) of cash holdings, followed by Taurus Mutual Fund (15 per cent) and ICICI Prudential Mutual Fund (14.76 per cent).

On the lower side, Benchmark Mutual Fund held only 0.70 per cent of its open-ended equity fund AUM as cash, while AIG Mutual Fund and Fortis Mutual Fund had around 1.5 per cent of their open-ended equity fund AUMs in cash.

Sameer Narayan, equity head of Fortis Mutual Fund, said, “We are mandated to remain 100 per cent invested and so our cash-holding level is low. But not all fund houses follow the same strategy and, hence, there could be a wide variety in cash holding levels of mutual funds.”