Market rally has thrown a challenge for equity fund managers to deploy money. ICRA Online data shows that fund managers managing diversified equity funds have increased their exposure to debt instruments and cash.
These fund managers have allocated Rs.54,170 crore or 11.13% of the total AUM of diversified funds in debt instruments and cash equivalent assets as on October 2017. Such exposure was only 6.86% of diversified equity funds AUM or Rs.23,336 crore as on October 2016. The MF industry has the total AUM of Rs.4.87 lakh crore in October 2017 in diversified funds as against Rs.3.40 lakh crore in October 2016, shows the data.
These equity Diversified funds does not include ELSS, sector, index, global and arbitrage funds.
Experts say that fund managers increase the cash levels in market rallies. S. Krishnakumar, CIO Equity, Sundaram MF says that cash allocation gives an opportunity to the fund managers to deploy funds as and when market corrects.
Seconding Krishnakumar’s view, Ramnath Venkateswaran, Equity Fund Manager, LIC MF says, “Cash allocation has increased as a precautionary measure given the sharp run up in the market over the last one month. Also, they may be holding cash to add more stocks. In fact, we have also marginally increased our cash allocation,” says Ramnath.
A few fund managers believe that fund managers should stay fully invested in equities irrespective of market conditions. “Most investors have a decent allocation to debt instruments before they invest in equities. Hence, we keep cash allocation to the minimum. There is also no signs of caution from the macroeconomic perspective. In my view, fund managers should allocate only up to 2% of our AUM in cash,” says Swati Kulkarni, Equity Fund Manager, UTI MF.