5 equity mutual funds sitting on high cash-holding

Financial experts believe that some mutual funds, especially those focused on value or caution, keep unusually high cash reserves. This suggests they are wary of the market. Mutual funds generally increase cash when they think the market is overpriced or when they see promising investment opportunities coming up.

Analysts often interpret these large cash reserves as a protective strategy. It suggests fund managers are preparing for a possible market downturn or correction. It’s unclear if these concerns will lead to a major market dip, but the significant cash positions in these funds are a key topic in current market discussions.

Cash Reserves in Mutual Funds

Mutual funds are required to follow certain rules when investing, but they are allowed to keep a portion of their assets in cash, usually around 1% to 5% for equity funds, though some may hold up to 7-10%. The main reasons for holding cash are to provide liquidity for investors who want to withdraw their money and to have funds available to invest in new opportunities when they arise.

Equity mutual funds, which invest in company stocks for the long term, tend to keep lower cash balances. On the other hand, debt funds, which focus on shorter-term investments in bonds and similar financial instruments, often have higher cash reserves due to more frequent withdrawal requests from investors.

The fund manager decides how much cash to hold. Some managers choose to keep more cash when suitable stocks are difficult to find at reasonable prices, or when they believe the stock market is overvalued. Balancing these considerations is an important part of the manager’s role.

A sector or thematic fund may hold cash when it is hard to find good ideas in their universe. Diversified funds, meanwhile, can invest anywhere, so they face fewer problems. We found five mutual funds that have a lot of cash-holding.

Data as of March 31, 2024

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.