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Should Fund Size Matter In Your MF Investment Decision?
Mutual fund investors in general base their investment decision on past performance of the fund, fund managers' track record to manage the corpus, some random ratings assigned, construct of the fund's portfolio such as the mix of debt, equity or G-securities etc. But should investors be considering fund size or whether till date they had paid any heed to this parameter in their MF selection is discussed hereforth:
Decoding assets under management or fund size: The corpus amount which the scheme gathers from investors in a mutual fund or it can also be defined as the aggregate market value of investments or assets that a mutual fund holds.
In general mutual fund advisers encourage investors to pick large sized funds owing to their good performance history which has made the fund reach this size. Also there is a cost advantage with larger funds as they charge a comparatively small fee than smaller scheme with low corpus size.
Also, the significance of the fund size can be related with the type of mutual fund scheme such as equity, debt etc:
In case of equity mutual funds
The equity mutual fund scheme irrespective of the fund size that gives consistent higher risk-adjusted returns across market cycles scores. So, an investor can't go simply by the size of the fund while choosing an equity fund scheme. Though a larger fund size does tell about the long history or popularity of a fund but this doesn't guarantees good future performance.
Some of the small fund size schemes such as Canara Robeco Force with an asset size of Rs. 164 crores provided 5-year CAGR of 20.75% as against large cap category average of just 16.3%.
Going forward
But going forward the impact of fund size on the returns cannot be negated as fund managers are finding it tough to cope up with huge corpuses at a time when the returns are no longer broad-based and shall be restricted to few stocks, so they are sitting on huge cash pile. Also, they assert that outperformance shall be difficult to achieve.
It is to be noted that in case of large fund moving in and out of their positions in mid or small cap stock is tough while in case of a smaller fund it is not as difficult due to relatively lesser investment amount.
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