A mutual fund cash-to-asset ratio is also referred to as a mutual fund liquidity ratio. This ratio is used to determine the level of liquidity of a mutual fund. In other words, it is a ratio that highlights the proportion of the number of assets that are held in the form of liquid cash by the mutual fund.
Since cash is an indicator of a mutual fund's liquidity as well as potential purchasing power, a high cash-to-asset ratio is a sure sign of higher liquidity.
A mutual fund cash-to-asset ratio is a vital factor when ascertaining the extent of liquidity that a mutual fund possesses. In general, most mutual funds stock up on huge amounts of liquid cash whenever a sizeable purchase of securities is imminent. High cash-to-asset ratios are deemed to be bullish in nature, while low cash-to-asset ratios tend to be more bearish.
The significance of cash-to-asset ratios can be better outlined in the following ways :
Mutual Fund investments will be subject to market risks. Any mutual fund listed in the document does not guarantee fund performance or its underlying creditworthiness. Do read the mutual fund document thoroughly before investing. Specific investment needs and other factors have to be taken into account while designing a mutual fund portfolio.
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