Mutual funds in India saw a sharp decline in cash holdings in March 2026, as fund managers actively deployed reserves to capitalise on market corrections. Cash balances dropped to their lowest level in over a year, reflecting increased equity buying during the downturn.
Cash Holdings Decline Significantly
Industry data indicates that mutual fund cash reserves fell to approximately ₹1.86 lakh crore in March, down nearly 12% from ₹2.1 lakh crore recorded in February.
As a proportion of total assets under management (AUM), cash levels also declined to 4.73%, compared to 4.86% in the previous month, signalling a higher level of market participation by fund houses.
Funds Turn Buyers During Market Weakness
The correction in equity markets provided an opportunity for fund managers to accumulate stocks at relatively lower valuations. Around 60% of mutual fund schemes reportedly utilised their available cash to increase equity exposure.
This trend highlights a proactive investment approach, where fund houses used volatility as an entry point rather than holding excess liquidity.
Market Conditions Behind the Shift
The reduction in cash holdings occurred amid challenging global and domestic conditions. Rising geopolitical tensions and a surge in crude oil prices contributed to market uncertainty.
During the month, key indices such as the BSE Sensex and Nifty 50 declined by around 11.5%, with several stocks touching their 52-week lows.
Changes in Cash Positions Across Fund Houses
Several major fund houses reduced their cash positions during the month:
- SBI Mutual Fund lowered its cash holdings from ₹34,704 crore to ₹27,464 crore
- ICICI Prudential Mutual Fund reduced cash reserves to ₹17,290 crore
- Motilal Oswal Mutual Fund and Quant Mutual Fund also reported declines
Select Fund Houses Increase Cash
In contrast, a few asset managers chose to build cash buffers:
- Nippon India Mutual Fund increased its cash holdings to ₹7,811 crore
- Axis Mutual Fund and Edelweiss Mutual Fund also reported higher cash levels
This divergence reflects varying strategies among fund houses in response to market volatility.
Conclusion
The decline in mutual fund cash holdings in March 2026 underscores a shift toward active deployment of capital during market corrections. While many fund houses increased equity exposure, others maintained caution by building cash reserves, highlighting a mixed but strategic response to evolving market conditions.
Summary:
Mutual fund cash holdings fell to a 16-month low of ₹1.86 lakh crore in March 2026 as fund managers used market corrections to buy equities. While most fund houses reduced cash levels, a few increased reserves, reflecting diverse strategies amid volatile market conditions.
Disclaimer:
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