Mutual funds are sitting out the current phase of market volatility and not investing. Instead, fund managers are sitting on cash and have increased their cash component in the last few weeks.

Data on mutual fund activity in the market show that funds have been net sellers to the tune of Rs 128.4 crore (Rs 1.28 billion) in June so far. Fund managers indicate that they are churning and realigning their portfolios.

Ajay Bagga, CEO, Kotak Mutual Fund, confirms this when he says, "At this point of time, we are maintaining normal cash levels of 7-8 per cent in our large equity schemes. Kotak Mutual has been a net buyer over the past month and we have not seen much redemption. There have been regular inflows from corporates and high net worth individuals in our schemes."

Adds AK Sridhar, chief investment officer, UTI Mutual Fund, "We are currently maintaining a cash level of 2-3 per cent in most of our schemes."

The traded volumes in the market have been very low in June so far. Therefore, any mood swings in the market are as sharp as the swings in the indices.

"It is true that the market has been volatile for over a month now," Bagga notes.

Sridhar says, "The level of activity has definitely gone down in the past few days as fewer investment opportunities were available." He adds that though they have not seen any major redemptions in any of their schemes, fresh inflows have fallen.