More Fund Houses Might Take This Call As Inflows Into Equity Increases

During the various market cycles, there are certain calls that fund managers take. These decisions are usually based on various factors like valuations, opportunities and potential.

A cash call that a fund manager can take, is one such decision. Essentially, the fund will hold a certain amount of cash without deploying into the market. These are varying views that surround this call as there are differing views around the stand of sitting on cash.

There have been times in previous market cycles where fund managers have taken cash calls when the stocks are expensive or when there is limited opportunities to invest.

At this point of time, the Parag Parikh Flexi-Cap Fund have kept a significant percentage of cash. There are a few fund houses that have also increased their holdings in cash recently.

"Really hard to find attractive opportunities and cash position has been held," said Raj Mehta, fund manager at PPFAS Mutual Fund. These cash calls that are taken by the fund managers ideally need to be informed to the investors as well.

"We have no pressure to stay invested. We are happy to keep the cash and invest when the opportunities come around," said Mehta. Other fund houses like ICICI have also used the strategic deployment of cash in the past.

"In the short term we may underperform, but in the long term we will be able to outperform," he said. The objective is to ensure timely deployment of cash when the opportunity arises.

Timing the market is a task that makes the cash call complicated. When fund managers take a cash call, its important to ensure that the cost of sitting on the sidelines are met.

This call also comes with the need to accurately identify the best time to deploy the cash back into the market.

"I don't encourage cash calls for fund if it is not part of their objective" said Kirtan Shah, chief executive officer of Credence Wealth.

"PPFA and ICICI take cash calls and ensure that they communicate to their investors," said Shah. Its a technical bet and there were more than 18 schemes in September that were sitting on cash, he added.

Though these calls are largely based on market behaviour, the problem of stretched valuations and increasing inflow are constant.

"New SIP coming and investors buying every dip. The cash will keep coming in," he said. These calls may need to be taken at some point, but these are certain things that need to be ensured while a cash call is taken.

"This situation will only increase and I am skeptical about how often these cash calls can be taken. Taking cash calls should be something that investors are made aware of," Shah added. As long as the call aligns with the objective of the fund and investors are informed of the same.

Watch the full conversation here: