Some Fund Houses May Have Missed The Opportunity
Most of the investors are cheering the jump in the equity benchmark on Sep 20. However, after the government tax cut rates, some fund houses who were having a huge cash pile may have missed the opportunity.
According to the reports, the impact of the jump in market indices was seen in the day’s closing NAV of equity funds.
Most of the equity schemes’ net asset values raised over 8 percent in one day as on 20th September 2019. Kotak Banking ETF, Reliance ETF Bank BeES, SBI ETF Nifty Bank Fund NAVs jumped up to 8.31 percent. At the same time, IDFC focused equity fund gained 7.51% and UTI MNC Fund gained 6.06%.
As of the reports, these funds were having minimal cash levels. Hence, these can capitalize on the market rise on 20th Sep. In General, equity schemes hold the cash from 1% to 5% of a scheme’s corpus in cash. Moreover, some funds can hold over 7-10 percent.
However, the equity funds which were holding an enormous cash collection may become missed the opportunity to behold increases in its NAV.
According to the reports, ACEMF collects the 63 equity mutual fund schemes data. As on Sep 20, those schemes were holding over 10 percent in cash and cash equivalent. Moreover, 12 schemes hold more than 20 percent cash in its portfolio.
The data determine that ICICI Prudential Mutual Fund schemes have the highest cash holding in its portfolio.
As of the source, ICICI Prudential Bharat Consumption Fund Series 2 considered the first highest cash holding scheme. This fund held over 34.50 percent in cash and cash equivalents. Moreover, ICICI Pru MNC Fund and ICICI Pru Value Fund held 33.53% and 3.81 percent respectively.
A fund manager said that “some schemes prefer to book profit and hold cash in volatile markets or when markets are consistently rising. He also adds ” We were having cash due to volatile markets. Moreover, we were waiting for the right time to invest. But, we did not expect that the Finance Minister’s decision led to a big move. Due to this reason, we missed the opportunity to witness gains in NAVs.”
Frequently, there are two reasons behind the cash holdings. Fund managers hold cash for buying the opportunity. For example, In case, a stock price falls on a given day or has been falling over a period which the fund managers feel is an optimum price to buy, investors may buy some shares.
The second reason, when your fund manager books profits but does not feel the need to redeploy the money soon. investors sit on cash until they find the right opportunity to buy.