Does AUM Affect Funds Performance?

POSTED BY TheZionView ON September 12, 2011 2:26 pm COMMENTS (4)

I hear many people talking about Asset Under Management(AUM) of any mutual fund is one of the parameters in considered as factor is choice making.

Like large AUM for Debt MF is good and  Large AUM for Equity MF is bad.

Reason given:

Debt MF with large AUM can buy in bigger token of bank deposits which are given with premeir interest.

Equity MF with large AUM will be difficult to manage and hence performance slow down.

I understand in Debt MF it might matter but the rationale behind Equity MF is what i generally i dont get.

4 replies on this article “Does AUM Affect Funds Performance?”

  1. Uday says:

    Hi,
    What is your view on HDFC top 200. Its performance is poor in the recent years. Is that due to its asset size? Can the same thing be expected from icici pru value discovery fund?

    1. We cant be very sure why its performance has detoriated

  2. Ramesh says:

    A large corpus is bad, when the target stocks of the fund’s mandate are mismatched.

    Eg. for a mid and small cap fund, if the corpus becomes very large, then even for relatively small percentage allocations of the fund, the volume transactions of the individual stocks becomes very high leading to issues. This has happened in case of Reliance Growth which started as a mid-small cap fund but because of huge corpus, it has to invest in large caps (mandate / style changes which has led to underperformance).

    IDFC Premier Equity fund (which has a style of mid and small cap) limits the lump-sum purchase of the fund (according to fund manager’s discretion), so that the total corpus of the fund doesnt go way beyond management style.

    On the opposite spectrum is Peter Lynch’s Fidelity Magellan’s fund, whose corpus was very huge, but he used to buy all sorts of stocks (multi-cap style, more towards growth-style) and still managed to outperform his benchmark tremendously. He is said to have some 1400 stocks in his portfolio at one time (cannot say for sure).

    In short, a large corpus is bad for mid and small cap funds, but not for funds which include large-caps in their style/mandate.

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