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Do Mutual Funds Make Active and Skilled Liquidity Choices in Portfolio Management? Evidence from India

Year: 2025

Type: article

Abstract: This study examines active liquidity management by Indian open-ended equity mutual funds. We find that fund managers respond to inflows by increasing cash holdings, which are subsequently deployed to acquire less-liquid stocks at favorable valuations. Funds with less liquid portfolios tend to maintain larger cash reserves to manage flows. Funds that make active liquidity choices yield statistically and economically significant gross and net returns. The performance differences between funds with varying activeness in altering liquidity highlight the importance of active liquidity management in markets with substantial cross-sectional liquidity differences, such as India.

Source: Emerging Markets Finance and Trade

DOI: 10.1080/1540496x.2025.2566224

Authors: Pankaj K. Agarwal, H K Pradhan, Konark Saxena

Institutions: Xavier School of Management, ESCP Business School, ESCP Business School, ESCP Business School, ESCP Business School

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W4415664612

FWCI: 0.939

Cites: 45

Cited by: 1

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