Mutual Fund Liquidity Ratio

Mutual Fund Liquidity Ratio

A ratio published monthly by the Investment Company Institute that compares the amount of cash relative to total assets held by a mutual fund.

Notes:

The mutual fund liquidity ratio is used by equity investors to gauge the demand for shares and the bullishness or bearishness of portfolio managers.

For example, if a mutual fund is sitting on a large amount of cash, the theory is that it is doing so because it is hard pressed to find quality investment opportunities therefore, it has a bearish sentiment towards the market. Conversely, if a mutual fund is highly invested and has a very small amount of cash on hand, the theory is that it has found some excellent investing opportunities and is taking advantage of these opportunities by being nearly fully invested - that is to say, it is bullish.

See also: Asset, Bear Market, Bull Market, Information Ratio, Liquidity, Mutual Fund, Portfolio Manager