Does your Mutual Fund hold too much cash? Here's all you need to know

Well, the mutual fund schemes always come with a mandate to invest in securities. And it allows only a small part of its portfolio in cash. Why is there a restriction you'd ask? This is to meet redemption or any other opportunities to buy that may across.

So normally equity funds can hold cash between 1% and 5% of fund and some funds can hold 7-10% of the fund corpus in cash as well. While some funds do prefer to hold larger portion of their portfolios in cash since its mandate allows them to do sobut good stocks are not availabe at such valuations.

Other funds like dynamic equity funds can hold higher cash if the equity markets are doing well.

However, equity funds have lower cash levels becausye these schemes are made for long term investments that can give returns after a period of time.

Moreover, debt funds allocate larger portion to cash and cash equivalent instruments because experts say that the investors usually would prefer investments that are short termed as they see it as bigger opportuinity to redeem debt funds.

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