MF Equity Cash Holdings Rise ₹4,000 Crore to ₹2.10 Lakh Crore in February Amid Volatility

Mutual fund equity schemes increased aggregate cash holdings by ₹4,000 crore to ₹2.10 lakh crore in February 2026 (from ₹2.06 lakh crore in January), driven by market volatility and eight equity NFOs raising ₹3,955 crore in the month (vs four NFOs raising ₹806 crore in January), per a JM Financial report. Cash levels remain below 5% of total equity AUM. SIP inflows held stable at ~₹29,000–₹30,000 crore per month; cumulative SIP inflows for the first 11 months of FY2025-26 rose 10% to ₹3,17,502 crore against ₹2,89,352 crore for all of FY25. Total equity AUM rose 16% to ₹35.39 lakh crore in February 2026 from ₹30.57 lakh crore in April 2025 despite ongoing volatility. Gross equity redemptions fell to ₹36,098 crore in February from ₹41,639 crore in January. The Sensex fell 7% in March so far, to 74,533 on Friday from 80,239 on March 2, 2026.

Key Takeaways for Portfolio Decisions:

  • Cash below 5% of AUM signals no systemic stress. Fund managers are not panic-building dry powder — they remain largely invested, suggesting no structural risk warranting pre-emptive selling. In a falling market, staying invested ensures funds don’t miss a sharp recovery.
  • SIP inflows: 10% growth in 11 months of FY26 vs all of FY25 shows retail investor discipline is holding despite sharp market declines. SIPs act as a natural shock absorber — consistent inflows give fund managers liquidity without needing to hold excess cash.
  • Redemptions falling (₹41,639 cr → ₹36,098 cr month-on-month) despite a 7% Sensex fall in March is a positive signal — fewer investors are exiting in panic, suggesting the recent SIP-investing cohort is holding through the correction.
  • NFO cash inflation is temporary. Eight equity NFOs raised ₹3,955 crore in February — newly raised cash awaiting deployment can temporarily inflate cash holding figures. Don’t read this as defensiveness; it’s a deployment pipeline, not a risk signal.
  • Equity AUM at ₹35.39 lakh crore is 16% above April 2025 levels despite the current correction — long-term investors who entered at the start of FY26 are still meaningfully in the green, which partly explains lower redemption pressure.
  • Watch March data closely. With Sensex down 7% in March, the next month’s report will reveal whether the correction has triggered behaviour change. If SIP numbers hold and redemptions stay manageable, it would be a strong signal of retail market maturity.

Why Gold Prices Are Falling Despite a Crisis — and What Investors Should Do

Gold prices in India have dropped sharply since the West Asian conflict began on February 28 — 24-carat gold fell from around ₹1.9 lakh per 10 grams in late January 2026 to around ₹1.3 lakh, reversing a rally in which prices had more than doubled over two years. Internationally, gold had crossed $5,000 per troy ounce before the conflict. Three forces are driving the correction simultaneously. First, oil prices surged past $120 a barrel, raising inflation fears and shifting market expectations: rate cuts now appear off the table, making interest-bearing assets like U.S. government bonds more attractive relative to gold, which yields nothing. Second, higher expected rates have strengthened the dollar — as countries need more dollars to pay for costlier oil imports, dollar demand rises, making gold more expensive for foreign buyers and dampening demand. Third, a liquidity crunch: with stock markets falling since the conflict began, investors who held gold on years of gains have been selling it to cover losses in other parts of their portfolios. Gold ETF inflows in India remained positive for the tenth consecutive month in February 2026, per World Gold Council data. February gold imports were 38% lower than January but still over 80% higher in volume compared to the same month last year. Central bank gold buying, which slowed modestly in 2025, showed a strong rebound in February 2026. The dollar’s share in global forex reserves has declined from about 71% in the early 2000s to under 60% in recent years as countries diversify into gold.

Key Takeaways for Portfolio Decisions:

  • This correction has structural drivers, not just panic selling. Three forces — higher rate expectations, a stronger dollar, and forced profit-booking — hit simultaneously. None of these are permanent, but none are resolving quickly either. Don’t treat this as a simple dip to buy reflexively.
  • The rate expectations mechanism is the key watch: If oil prices stabilise and inflation fears ease, rate-cut expectations return, the dollar weakens, and gold’s appeal revives. If oil climbs further and inflation entrenches, stagflation becomes the scenario — which is also historically bullish for gold, but through a different and painful path.
  • Gold ETF inflows staying positive is significant: Despite the sharp price fall, retail investors in India have not fled gold ETFs — inflows were positive for 10 consecutive months through February. This suggests the underlying investment demand is intact, even as prices have corrected. SIP investors in gold ETFs are actually averaging down automatically.
  • Central bank buying as a long-run floor: Central banks — among the largest buyers of gold — are still accumulating, with a strong February 2026 rebound in buying. Since Western nations froze Russian assets post-Ukraine, many governments have treated physical gold as a sanction-proof reserve. This structural demand doesn’t turn off based on short-term price moves.
  • Don’t over-allocate to gold chasing the “safe haven” narrative. This episode shows gold is not a perfect crisis hedge — it depends heavily on the type of crisis. An oil-shock crisis that strengthens the dollar and raises rate expectations is bearish for gold, not bullish. Size gold as a portfolio diversifier (typically 5–15%), not as crisis insurance that always pays out.
  • Physical vs ETF: If you want to buy the dip, gold ETFs are simpler — no making charges, easy to SIP, and liquid. Physical jewellery remains expensive to enter and exit due to making charges (10–25%). Sovereign Gold Bonds (if available) offer 2.5% annual interest on top of price appreciation and are capital-gains-tax-free if held to maturity.

Six Passive Equity Index Funds to Consider During the Market Dip

With the Iran conflict driving FPI outflows and broad market declines, passive index funds offer a simpler route to capitalise on the fall without stock-picking risk. Analysis of 20-year rolling returns (March 2006–2026) across six index categories suggests options for different investor profiles. For new investors: Nifty 100 index funds deliver 12.6% average five-year CAGR (vs Nifty 50’s 12.2%) with near-zero loss probability and lower concentration — top pick: Bandhan Nifty 100 (0.10% expense, 0.20% tracking difference). Nifty LargeMidcap 250 offers 14.4% CAGR with only 0.84% loss probability — top pick: Zerodha LargeMidcap 250 (0.27% expense, 0.18% tracking difference). For aggressive investors: Nifty Smallcap 250 has hit 40% CAGR in best five-year spells but carries 8% loss probability and nosedived 70% in its worst year — top pick: Motilal Oswal Smallcap 250 (0.33% expense, 0.52% tracking difference). For defensive investors: Nifty 500 Value 50 returned 29.4% CAGR over five years at a PE of just 9.7x — top pick: Axis Nifty 500 Value 50 (0.17% expense). Nifty Dividend Opportunities 50 offers 16.7% five-year CAGR with the lowest volatility (14.5% std dev). Nifty 100 Low Vol 30 has the lowest standard deviation at 11.6% — top pick: Mirae Asset Low Vol 30 ETF (0.34% expense).

Key Takeaways for Portfolio Decisions:

  • Minimum five-year horizon is non-negotiable. No one can predict the market bottom, and even Nifty Smallcap 250 has an 8% chance of losses over five years. Time is the primary risk mitigator for passive funds.
  • Nifty 100 > Nifty 50 for most investors: Better diversification (top 5 stocks = 31% vs 38%), slightly higher returns, and lower loss probability. Unless you specifically want mega-cap concentration, default to Nifty 100.
  • LargeMidcap 250 as a one-fund portfolio: 14.4% CAGR with sub-1% loss probability makes it the best risk-reward option. The 50/50 large-mid split auto-rebalances — eliminates the need to manage separate large-cap and mid-cap allocations.
  • Tracking difference matters more than expense ratio: A fund with 0.25% expense but 0.40% tracking difference costs you more than one with 0.33% expense and 0.18% tracking difference. Always compare both.
  • Value factor is the standout: Nifty 500 Value 50 at 9.7x PE with 29.4% five-year CAGR is a rare combination — heavy in financials (26%), oil & gas (25%), and metals (21%). Distinct from growth-heavy indices, making it a good diversifier even for aggressive portfolios.
  • Current valuations: Nifty 100 PE at 20.2x (down from 25.3x peak), LargeMidcap 250 at 24x (from 32x), Smallcap 250 at 24x (from 35x) — all meaningfully off peaks but not at historical lows.

Muthoot Fincorp NCD Issue — AA-/Positive Rated, Yields Up to 9.1%

Muthoot Fincorp is raising ₹200 crore via non-convertible debentures (NCDs) with a greenshoe option to retain up to ₹600 crore total. The issue, rated AA-/Positive by CRISIL, offers 24-month, 36-month, 60-month, and 72-month tenors with monthly, annual, and cumulative payout options. Coupons for monthly payouts range from 8.37–8.75%, translating to yields of 8.7–9.1%. The three-year tranche (annual payout) offers 8.84% yield — a 266 bps spread over corresponding G-Secs, significantly above the typical 146 bps spread for AA- rated corporate bonds. The company operates 3,757 branches across 25 States, with gold loans comprising 85% of its lending book. Gold loan disbursements industry-wide grew 94% YoY to ₹8.16 lakh crore (December 2025), with NBFC gold loans surging 189% to ₹2.53 lakh crore. Muthoot Fincorp’s loan book grew 43.2% between March–December 2025. GNPA improved from 2.11% (FY23) to 1.34% (9MFY26), with capital adequacy at 18.17% (vs RBI’s 15% mandate). The issue closes March 23 and was 112.64% subscribed as of March 18.

Key Takeaways for Portfolio Decisions:

  • Yield advantage over safe instruments: 8.84–9.1% yields vs 7.7% on five-year NSC and 8.05% on RBI Taxable Bonds. The 250+ bps spread over G-Secs compensates for the credit risk step-down from sovereign to AA-.
  • Prefer shorter tenors (24–36 months): With interest rate direction uncertain — rate cuts may not materialise given Gulf war-driven inflation — locking in for 60–72 months risks being stuck at below-market rates if rates rise. Shorter tenors offer reasonable yields with exit flexibility.
  • Monthly/annual payouts over cumulative: Regular cash flows reduce reinvestment risk and provide liquidity. Cumulative option locks up the entire return until maturity.
  • Gold loan sector tailwind: The 94% YoY growth in gold loan disbursements, driven by surging gold prices, directly benefits Muthoot Fincorp’s core business. Gold-backed lending is inherently lower-risk (liquid collateral with rising value), supporting the AA- rating.
  • Position sizing: NCDs should be a small satellite allocation in your fixed-income portfolio — core should remain in sovereign instruments (NSC, RBI bonds, G-Sec funds). AA- is safe but not risk-free; use NCDs as yield enhancers, not replacements.
  • Already oversubscribed: At 112.64% subscription with greenshoe capacity up to 300%, allotment is likely but not guaranteed at full amount applied.

Kotak Aggressive Hybrid Fund — Consistent Outperformer in Category

Kotak Aggressive Hybrid Fund, with a 27-year track record, has delivered 14% annualised returns since inception. Its five-year rolling returns (calculated over the past seven years) show a CAGR of 18% versus the category average of 16%. The fund maintains 69–80% equity allocation, with ~45% in large-caps and 30–35% in mid/small-caps. The fixed income portion follows a blend of accrual and duration strategies.

Key Takeaways for Portfolio Decisions:

  • Category leader with consistency: 18% five-year rolling CAGR vs 16% category average — a 2% alpha sustained over rolling periods is meaningful, not just a point-in-time snapshot.
  • Allocation profile: The 69–80% equity tilt makes this behave more like an equity fund with a debt cushion than a balanced fund. Suitable if you want equity-heavy exposure with some downside protection, not if you want true 60/40 balance.
  • Mid/small-cap kicker: The 30–35% mid/small-cap allocation within equity is higher than many peers — this drives outperformance in bull runs but adds volatility. Be aware of this if you already have significant mid/small-cap exposure elsewhere.
  • When to consider: In current volatile markets, SIP into a hybrid fund like this can be a way to stay invested without full equity drawdown risk. The debt component auto-rebalances — the fund manager buys equity when it dips below allocation range.
  • Minimum horizon: At least 5 years. Hybrid funds underperform pure equity in strong bull markets — the payoff is smoother ride and better risk-adjusted returns over a full cycle.

50% of Actively-Managed Equity NFOs Underperformed in Bull Run Since 2020

A bl.portfolio analysis of 275 active equity fund NFOs launched between 2020 and March 2026 found that 133 funds (48%) have underperformed their benchmarks, rising to 50% for sectoral and thematic funds specifically. AMCs launched 1,187 NFOs in six years, raising ₹4.67 lakh crore — with 157 thematic/sectoral funds alone raising ₹1.64 lakh crore, driven by distributor commissions and higher fees. Category-wise, dividend yield (80%), mid-cap (73%), and ELSS (67%) show the highest failure rates, while value (29%), multi-cap, and flexi-cap (36%) fared better. Among thematic funds, manufacturing (8/10) and ESG (6/8) underperformed most, while banking & financial services (4/16) did relatively well. When compared against a 7% FD return benchmark, 50% of these funds underperformed.

Key Takeaways for Portfolio Decisions:

  • NFO timing trap: Funds launched 2020–2024 show 50%+ failure rates despite operating through a bull run. Recent 2025–2026 launches show lower failure rates (41% and 12%), but this is misleading — they’re still deploying capital with high cash buffers.
  • Thematic/sectoral caution: These are typically launched when a theme is already hot (stretched valuations). They deliver in short bursts but are cyclical — don’t make them core holdings.
  • Prefer track record over novelty: Comparable funds with longer histories are usually available, offering better visibility on consistency and downside behaviour.
  • Diversified > thematic for core: Prioritise diversified funds or low-cost index/ETFs for core allocation. Thematic funds, if any, should be satellite positions with disciplined entry/exit.
  • Notable laggards: HDFC Defence (35% CAGR vs benchmark’s 52%), Shriram Multi Sector Rotation (-23% vs -6%), Samco Special Opportunities (-15% vs +1%).
  • Notable outperformers: Quant BFSI (23% vs 10%), ICICI Prudential Energy Opportunities (2% vs -8%), TRUSTMF Small Cap (-1% vs -12%).