The percentage of a mutual fund's total assets that are currently held in cash or cash equivalents. While mutual fund cash level can refer to the cash level of an individual fund, it most often refers to the aggregate level of cash held across a wide demographic of mutual funds, which is used as a barometer of institutional buying power and market sentiment.

Watch: Mutual Funds

Most mutual funds need to keep around 5% cash available at all times in order to handle the day-to-day redemptions of shares. Cash levels outside of this range can signal a collective sense of fear or optimism about the broad markets.

For instance, if aggregate mutual fund cash levels are above 10%, this would signal that fund managers are generally bearish about the market and holding back on making new purchases. On the other hand, cash levels in the range of 5-8% would signal a generally bullish stance, as most available cash is being put to work in the market. Some investors view mutual fund cash levels as a contrarian indicator, as cash levels generally reach their peak at market bottoms.