Home Business Business Your mutual fund might be holding too much cash

Business Your mutual fund might be holding too much cash

Business

Every mutual fund scheme comes with a mandate to invest in certain types of securities. And at all times, as well. But every mutual fund scheme is allowed a tiny part of its portfolio in cash. This is allowed in order to meet redemptions or any “buy” opportunities that the fund may come across on any day.

Usually, equity funds hold cash between 1% and 5% of a fund’s corpus, though some funds can hold as high as 7-10% of their corpus in cash. Some funds prefer to hold larger portions of their portfolios in cash because their mandate allows them to hold high cash levels if—as per their analysis—good stocks are not available at desirable valuations. Few others like dynamic equity funds also hold higher cash if they feel equity markets are overheated.

View Full ImageUsually, equity funds hold cash between 1% and 5% of a fund’s corpus, though some funds can hold as high as 7-10% of their corpus in cash

Equity funds usually have low cash levels as these schemes are vehicles meant for long-term investments. Debt funds have a larger allocation to cash and cash equivalent instruments as investors usually invest for the shorter term here and therefore there is a bigger chance of redemption in debt funds. Whether or not a fund ought to hold cash is a subjective call.
Here’s a list of funds with the highest cash levels (data from valueresearchonline.com). But keep in mind that it’s not wise to choose a fund based on its cash holding. Instead you should evaluate parameters such as long-term returns, portfolio risk and the fund manager’s strategy.

Subscribe to Mint Newsletters

* Enter a valid email
* Thank you for subscribing to our newsletter.

Click here to read the Mint ePapermint is now on Telegram. Join mint channel in your Telegram and stay updated
Read More

LEAVE A REPLY

Please enter your comment!
Please enter your name here

- Advertisment -

Most Popular

How can I tell the difference between the flu and COVID-19?

Last Updated : Oct 01, 2020 01:54 PM IST | Source: AP Body aches, sore throat, fever, cough, shortness of breath, fatigue and headaches are symptoms shared by the two. How can I tell the difference between the flu and COVID-19?It’s impossible to tell without a test. Influenza and COVID-19 have such similar symptoms, you…

Cardiac arrest common in sick Covid-19 patients

Photo for representational purpose only. iStock New York, October 1 Cardiac arrest is common in critically ill patients with Covid-19 and is associated with poor survival, particularly among patients aged 80 or older, say researchers. The findings, published in the journal The BMJ, could help guide end-of-life care discussions with critically ill patients with Covid-19…

Beware: Vitamin D deficiency can make you obese and lead to stunted growth

Vitamin D, or the ‘Sunshine Vitamin as it is also known as, is one of the essential nutrients that makes your bones and teeth stronger, wards off infections and diseases and keeps you cheerful. This fat-soluble vitamin can also bring down your risk of cancer, autoimmune diseases, heart disease and diabetes. But unfortunately, as many…

COVID-19 cases decline, deaths increase in Chandigarh as September ends

Naina MishraTribune News ServiceChandigarh, October 1 As September comes to an end, the Union Territory has started to witness a decline in the number of positive COVID-19 cases, and daily tests.  However, COVID deaths have increased with every passing week.  September has recorded 100 COVID-19 deaths whereas August reported only 39 deaths.  At least three…

Recent Comments