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Do Mutual Funds Make Active and Skilled Liquidity Choices in Portfolio Management? Evidence from India
Pankaj K Agarwal, H K Pradhan, Konark Saxena
https://arxiv.org/abs/2510.02741

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