30% in cash: Are MFs quietly bracing for an upcoming market storm? Expert shares insights

A growing mountain of cash is making more headlines than stock picks in India’s mutual fund industry. Five mutual fund schemes now collectively hold a staggering Rs 58,442 crore in cash, accounting for nearly 30% of the entire industry’s cash reserves.

“Many mutual funds are sitting on significant cash positions because they’re not comfortable with current valuations,” explains CA Nitin Kaushik, a financial expert tracking fund flows. “When professionals hold back this much capital, it’s a clear sign they’re bracing for turbulence—or waiting for better opportunities.”

The industry-wide cash corpus stands at around Rs 2 lakh crore. Yet, just five funds dominate this cash hoard. Parag Parikh Flexi Cap Fund leads the pack, sitting on Rs 22,360 crore. Following it are SBI Contra Fund with Rs 10,028 crore, HDFC Flexi Cap with Rs 10,013 crore, Motilal Oswal Midcap Fund with Rs 9,479 crore, and HDFC Mid-Cap Opportunities Fund with Rs 6,562 crore, according to data from Elara Securities.

Kaushik notes, “It’s remarkable that about 25% of the mutual fund industry’s entire cash reserves are concentrated in just four schemes, and half of it is held by only 18 funds. This isn’t just tactical—it’s strategic.”

Experts believe this cash buildup is not merely a short-term pause. For many funds, the elevated cash levels have persisted for over a year, driven by concerns over frothy valuations, particularly in the mid- and small-cap segments.

Experts add that there are three major reasons behind this deliberate cash hoarding. First, fund managers want a volatility cushion to protect portfolios against sudden market swings.

Second, they’re anticipating a wave of new supply in the market—from Offer-for-Sale transactions, expiring IPO lock-ins, and upcoming large share issuances. Third, macroeconomic indicators are turning favourable, like falling crude oil prices, a stable rupee, expected rate cuts from the RBI, and signs of renewed foreign investor interest.

High cash reserves can also reflect a lack of conviction about immediate market levels. “A 30% cash position signals that fund managers see current valuations as stretched,” Kaushik says. “They’re essentially waiting for prices to correct, so they can deploy capital at more attractive valuations. Retail investors should take note of this caution—it’s not the time to chase momentum blindly.”

Yet, this caution could transform into action quickly. “This cash pile is also a war chest,” Kaushik points out. “Once valuations moderate or new investment triggers emerge, these funds can move swiftly, potentially driving the next leg of the market rally.”

He adds, “For retail investors, the key takeaway is not to panic or blindly follow the crowd. Instead, review your asset allocation and make sure your investments are diversified. High cash levels among mutual funds mean the pros are preparing for volatility—but also for opportunities.”

In essence, India’s mutual funds are poised like a coiled spring. Whether this record cash pile turns into a safety net or becomes the fuel for the next bull run will depend on how markets unfold in the months ahead.

“The big money is ready,” Kaushik concludes. “They’re just waiting for the right moment to strike.”