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

Pankaj K Agarwal, H K Pradhan and Konark Saxena

Papers from arXiv.org

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 later used to purchase less-liquid stocks at favourable 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.

Date: 2025-10
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Published in Emerging Markets Finance and Trade, 2025

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2510.02741

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