Why are Mutual funds holding excess cash in this market?

February 21, 2019 | Investopaper

In the past two and a half years, the Nepalese share market observed a major crash as Nepse has dropped from the peak value of 1881 to the range of 1100. So many investors have realized that investing is not easy and needs good analysis and rational decision making for long term gain and return on investment. In this scenario, many new investors or investors who have suffered from picking bad stocks might be willing to go with mutual funds in order to invest sensibly and reduce the level of risk. The mutual funds can take this as an opportunity to collect funds from many investors and then invest in the stocks and bonds. This could be the right time for the mutual funds to market themselves by ensuring safe investments through their professional money managers.

Also Read: Online Share Trading In Nepal: How To Buy & Sell Shares?

While we think that this is an opportunity for the mutual fund, the monthly report published by two mutual funds scheme seems contradictory to our thinking.

Siddhartha Capital has published the monthly report( Magh end) of its two mutual funds scheme: Siddhartha Equity Fund(SEF) & Siddhartha Equity Oriented Scheme(SEOS). Both the mutual funds are holding excess cash in the bank balance. Neither of the two is increasing the equity investment from the previous month. On the contrary, SEOS has sold shares in the month of Magh cutting the equity position from Rs. 50 crores in Poush to Rs. 40 crores in Magh.

The cash holdings by SEF and SEOS remains at huge Rs. 71.98 Crores and 47.52 Crores respectively. This is almost 50% of the total initial assets value of both the schemes.

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Mutual Funds, instead of increasing their investment in shares in the bear market, are selling shares and holding excess cash. Collecting huge sums of money from the public and holding cash should not be the major objective of mutual funds. If institutional investors such as mutual funds are afraid to invest at such a market where the securities are priced reasonably, then what can the public expect from them.

The decision taken by Mutual Funds at the current market doesn’t seem rational. Nepse index has already declined by more than 40% from its high of 1881. The price of shares is at low levels. Buying at current low prices should hold the top priority among mutual funds. However, mutual funds are doing exactly the opposite. So, what are the mutual funds waiting for? Are they trying to purchase shares at the peak market at higher prices? The recent activities seem to suggest that. If not, why are they avoiding the market when the market is at such a bargain level. Both the mutual fund schemes have ‘Equity‘ in their names. But they don’t have enough equity in their portfolio. They have more cash than equity. It might be better if they changed their names to Siddhartha Cash Fund and Siddhartha Cash Oriented Scheme.


Siddhartha Equity Fund (SEF) Siddhartha Equity Oriented Scheme (SEOS)
Headings Magh end, 2075 Poush end, 2075 Magh end, 2075 Poush end, 2075
Fixed deposit on banks 15 Crores 15 Crores 10 Crores 10 Crores
Investment on debentures 5.60 Crores 5.60 Crores 3.20 Crores 3.20 Crores
IPO/Right/Bonus 2.49 Crores 2.71 Crores 3.34 Crores 2.72 Crores
Investment in listed shares 62.39 Crores 61.26 Crores 40.65 Crores 50 Crores
Bank Balance (Cash) 71.98 Crores 76.07 Crores 47.52 Crores 38.77 Crores
Net Asset Value (NAV) 10.62 10.75 10.51 10.61
Total Units 150,000,000 150,000,000 100,000,000 100,000,000

Also Read: Mutual Funds In Nepal: Every Thing You Need To Know


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