Indian Mutual Funds Slash Cash Holdings to 5.8% — Is It Good for Retail Investors?

In recent months, Indian mutual funds have reduced their cash holdings to around 5.8% of their equity asset under management (AUM).

This might look like a small technical move, but it has big meaning in the market, especially for everyday retail investors.

Let’s break down Indian Mutual Funds Slash Cash Holdings to 5.8% and what it means for investors.

Why Are Indian Mutual Funds Slash Cash Holdings to 5.8%?

According to 5Paisa, from April 2025, the top 20 mutual fund houses held about ₹2.42 lakh crore in cash, which is roughly around 5.9% of their equity AUM. That was already the lowest it had been in months.

But by May 2025, they reduced another ₹6,240 crore, which bringed the cash total of ₹2.17 lakh crore, which is about 5.8% of equity AUM, assuming that the total AUM is approx ₹37 lakh crore.

Here are the main reasons why are funds doing now:

• Market optimism: India stock markets are doing well recently, even better than global competitors. Fund managers are more confident and move cash into stocks.

• Better valuation: After a slight decline in prices, stocks are looking more attractive and funds are buying.

• Strong SIP inflows: More and more retail investors are investing money into Systematic Investment Plans (SIPs). This new money is being invested instead of resting as cash.

• SEBI and AMFI Guidance: Regulators have been promising fund houses to handle mid-cap and small-cap liquidity better, which is moving to more careful and active implementations.

Is 5.8% Cash Holding a Good Sign for Retail Investors?

It is a good sign and here is why:

1. It’s efficient yet safe
   Investments about 6% in cash gives fund managers space to handle withdrawals or market dips, but it also makes sure that most money is actively working. It’s not too high, which would mean being too cautious or too low, which could be risky.

2. Better chances for returns
   Less cash means more money is in stocks and if the market rises, then the funds can deliver better returns in the future. Retail investors benefit from it because their invested money is being used more regularly.

3. Still offers some protection
   Even at 5.8% of equity AUM, there is a cash safety net. If markets go down suddenly or if many investors want to take out the money, the funds are not caught off guard.

4. Comfort for cautious investors
   Holding too much cash during a bull market, usually when stock prices rise can hurt your performance. This reduced allocation shows that fund managers believe now is an ideal time to stay invested.

5. Comfort for cautious investors
   If you are someone who doesn’t take much risk and likes to play safe, then this number still gives some peace of mind. It is not fully invested with zero backups, and that balance helps reduce anxiety about market ups and downs.

Fund Houses Follow Different Strategies

Not all mutual funds follow the same strategy:

• Quant Mutual Fund keeps cash around 10% in May, which is used to make investment in mid-cap and small-cap stocks when the time feels right.

• PPFAS and Motilal Oswal held even higher cash, which is between 13 to 21%, most probably waiting for better buying opportunities.

• On the other hand, big fund players like SBI, ICICI Prudential, Axis, and even PPFAS decrease their equity cash by ₹3,000 to ₹4,000 crore each in May month.

This means that investors have choices and some funds are more aggressive, others more cautious.

What Should Retail Investors Do?

Here is what you can do if you are a retail investor:

1. Check your fund’s cash ratio
   Always look at your fund’s monthly factsheet to check how much cash it’s holding. If it’s a lot more than 7 to 8%, then it might be missing out on gains. If it’s much lower than 5%, then it could be taking in more risk.

2. Match it with your comfort level
   If you are someone who gets nervous during the times of market ups and down, then always look for funds that hold a bit more cash. If you are okay with short-term market ups and downs for long -term growth, then funds with 5 to 6% cash are fine.

3. Track mid-cap and small-cap liquidity
   Keep in mind to track the mid-cap and small-cap funds, because they react faster to market ups and downs. Because of SEBI’s push, disclosures are clearer now. Always keep an eye on these, especially if you are investing in these categories. Visit AMFI India

4. Stick to your SIP plan
   Even if the markets go up or down, SIPs always help you invest regularly. Funds with a 5 to 6% cash buffer can still use your money wisely. Don’t stop your SIPs investments just because the market looks too high or too low.

Summary: What Retail Investors Need to Know

Final Thoughts

The fall in mutual fund cash holdings to 5.8% is a positive sign for retail investors. It shows confidence in the market, better use of investor hard-earned money, and continued readiness to manage risks.

As long as you choose the right fund for your goals and stay invested for the long-term with your investment and financial plans, you’re in a good position to benefit from this shift. How to Choose a Mutual Fund

FAQs

What is the ideal cash holding in equity mutual funds?
A balanced range is 5 to 7% and it is enough for flexibility without pulling down returns.

Does a lower cash percentage mean more risk?
It could usually mean a little higher short-term market ups and downs, but also more growth potential.

Why do some mutual funds hold more cash?
They might be careful, waiting for better buying opportunities or concerned about valuations or liquidity.

Where can I check my fund’s cash levels?
You can look at the monthly factsheet from your fund house or visit AMFI to see the current data.

Does lower cash mean better returns?
Not always but holding excessive cash in the market rising can hurt your performance. Moderate cash lets the fund stay flexible and responsive.