The cash holding of equity mutual fund (MF) schemes declined to its lowest level in nearly two years as fund managers “bought the market dip” last month.
According to a study by BNP Paribas, equity MFs deployed 13 per cent of their cash reserves in March, taking total cash holdings below ₹2 trillion for the first time in at least six months. Cash levels, as a percentage of total assets under management (AUM) of equity schemes, fell to a 21-month low of 4.7 per cent.
This depletion in cash balances came despite a sharp surge in net inflows. Net equity inflows rose to an eight-month high of ₹40,450 crore in March, driven by a pickup in lumpsum investments amid the correction. Passive equity schemes also garnered record inflows during the month.
The domestic equity market witnessed a sharp decline in March, weighed down by the US-Iran conflict, with the benchmark Nifty 50 index ending the month down over 11 per cent.
The surge in inflows, coupled with aggressive cash deployment by equity schemes and a shift in hybrid fund allocations towards equities, pushed net equity investments by MFs to a record high of ₹98,833 crore in March.
Record MF investments, along with higher deployments by other domestic institutional investors (DIIs), helped cushion the market fall despite heavy selling by foreign institutional investors (FIIs).
"DIIs invested a record $15.4 billion in March 2026, more than offsetting the $14.2 billion of outflows from FIIs," the report said.
"In March 2026, markets corrected by around 10 per cent despite strong domestic flows, and DIIs deployed $3 billion from their cash balance of around $23 billion (as of February 2026). This resulted in cash as a percentage of AUM at the lowest level in the last 21 months. Continued strong domestic flows remain crucial for Indian equities amid FII selling and a potentially large supply of equities," it added.