Indian mutual funds quietly adjusted their portfolio positioning in February as volatility in equity markets prompted several fund houses to increase cash holdings across equity schemes. Data from the Prime MF Database shows that nearly 63 percent of asset management companies (AMCs) raised their cash levels during the month even as broader market indices witnessed modest declines.

Benchmark indices remained under pressure during the period. The Sensex slipped about 1.2 percent while the Nifty declined around 0.6 percent during February, reflecting a phase of consolidation after a strong rally earlier in the financial year. Against this backdrop, several fund managers opted to maintain small liquidity buffers within their portfolios while continuing to stay broadly invested in equities.

According to the data, equity mutual funds collectively held cash worth about ₹1.36 lakh crore at the end of February, marginally higher than ₹1.35 lakh crore in January. However, when measured against the total equity assets managed by the industry, cash levels were largely unchanged. Cash represented about 2.62 percent of total equity assets in February compared with 2.63 percent a month earlier.

This indicates that while fund managers increased cash in absolute terms, they did not significantly shift their asset allocation away from equities. Instead, the rise in cash holdings appears to be partly linked to fresh inflows into newly launched schemes as well as tactical portfolio adjustments amid market volatility.

Part of the cash build-up was driven by new fund offers (NFOs) launched during the month. According to industry data available on www.primedatabase.com, a total of 21 open-ended mutual fund schemes collectively mobilised about ₹4,979 crore in February, while one close-ended scheme raised ₹378 crore. This took the total mobilisation through NFOs during the month to roughly ₹5,357 crore.

Equity-oriented funds accounted for the bulk of the inflows, raising approximately ₹3,955 crore. Among the launches, SBI Mutual Fund’s SBI Quality Fund emerged as the largest equity NFO during the period, mobilising ₹2,245 crore. Other notable launches included Kotak Mahindra Mutual Fund’s Kotak Services Fund which raised ₹760 crore and Edelweiss Mutual Fund’s Financial Services Fund that collected ₹224 crore.

Motilal Oswal Mutual Fund also launched a Financial Services Fund which mobilised ₹154 crore, while Jio BlackRock Mutual Fund’s Sector Rotation Fund raised about ₹98 crore. Funds raised through such launches typically remain parked in cash temporarily before being gradually deployed into equities, which partly explains the marginal rise in industry cash balances.

Among fund houses, SBI Mutual Fund held the largest cash position at the end of February with cash holdings of ₹26,101 crore. HDFC Mutual Fund followed with ₹19,453 crore while ICICI Prudential Mutual Fund held ₹15,514 crore in cash. Axis Mutual Fund and Kotak Mahindra Mutual Fund were also among the major holders with cash balances of ₹10,892 crore and ₹4,592 crore respectively.

In terms of monthly additions, SBI Mutual Fund recorded the largest increase in absolute cash holdings, adding about ₹4,597 crore during February. Quant Mutual Fund registered one of the sharpest percentage increases, with cash holdings rising 219 percent from January levels to ₹5,210 crore. This lifted Quant’s cash allocation to about 7.28 percent of its equity assets.

ICICI Prudential Mutual Fund also increased its cash balance significantly by adding ₹2,831 crore during the month. Kotak Mahindra Mutual Fund increased its cash position by ₹1,023 crore while DSP Mutual Fund added about ₹942 crore, reflecting a 23 percent month on month rise.

However, the trend was not uniform across the industry. Some large asset managers reduced cash levels as they deployed funds into equities. HDFC Mutual Fund reported the steepest reduction in absolute cash holdings, cutting about ₹8,236 crore from its portfolio during February. Motilal Oswal Mutual Fund reduced its cash balance by ₹2,534 crore while PPFAS Mutual Fund trimmed around ₹2,043 crore. Axis Mutual Fund and Nippon India Mutual Fund also reduced their cash positions.

Among smaller fund houses, cash allocations relative to assets showed wider variations. Old Bridge Mutual Fund had the highest cash allocation with about 15.48 percent of equity assets held in cash. Bank of India Mutual Fund followed with a 13.14 percent cash allocation while Capitalmind Mutual Fund held about 10.94 percent.

The data suggests that while some smaller AMCs preferred higher liquidity buffers, large fund houses largely maintained steady equity exposure.

From a market perspective, the trend reflects cautious optimism among institutional investors. Fund managers appear unwilling to exit equities meaningfully but are keeping modest liquidity buffers to navigate near-term volatility or to deploy funds in case of corrections.