Mutual Fund Liquidity Ratio


DEFINITION of '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. Equity investors use the mutual fund liquidity ratio to gauge the demand for shares and the bullishness or bearishness of portfolio managers.


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BREAKING DOWN 'Mutual Fund Liquidity Ratio'

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 toward 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.

  1. Liquidity

    The degree to which an asset or security can be quickly bought ...
  2. Bear Market

    A market condition in which the prices of securities are falling, ...
  3. Asset

    1. A resource with economic value that an individual, corporation ...
  4. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  5. Information Ratio - IR

    A ratio of portfolio returns above the returns of a benchmark ...
  6. Portfolio Manager

    The person or persons responsible for investing a mutual, exchange-traded ...
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