Cash holding of mutual funds rises in May amid weakness in broader market

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The average cash holding of equity schemes (growth) of the top 20 mutual fund houses by assets under management (AUM) increased to 5.2% in May 2022 from 3.2% a year ago according to the data compiled by brokerage

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A higher cash holding can be attributed to three reasons. Fund managers and market experts expect weakness in the broader market following a sustained selling by foreign investors amid higher commodity prices, rising interest rates across global economies, and depreciating rupee against the dollar. In the year-to-date period, the benchmark S&P BSE Sensex has fallen by nearly 10%.

Besides, launch of new funds over the past 12 months has added to the cash holding of the fund houses. The third reason is the steady inflow through the systematic investment plans (SIPs). A mutual fund distributor who requested anonymity said, “May 2022 is the ninth consecutive month in which the SIP inflow is above Rs10,000 crore. I think leading fund managers are on wait-and-watch mode.”

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