Mutual Funds Hoard Cash Amidst Market Volatility

Mutual fund houses significantly increased their cash holdings in equity schemes during February, adding ₹4,000 crore to reach ₹2.10 lakh crore. This build-up is attributed to heightened market volatility observed last month.

Despite the increase in cash, inflows from Systematic Investment Plans (SIPs) remained robust, providing a crucial counterbalance to redemptions. The total SIP inflows for the current fiscal year are up 10% compared to the previous year. Furthermore, a fall in markets has created fresh buying avenues, keeping overall cash levels in check.

Gross redemptions from equity schemes also decreased in February to ₹36,098 crore from ₹41,639 crore in January. Experts suggest that while cash levels have risen, they remain within manageable limits, indicating no severe liquidity stress. Consistent SIP inflows are seen as a natural support system for the mutual fund industry.

Overall equity assets under management have grown by 16% since April 2025, reaching ₹35.39 lakh crore by February 2026. However, the market performance in March is anticipated to be critical, with the Sensex already experiencing a notable decline, making geopolitical developments a key factor for future market direction.