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Concerns Over AUM

Though a fund’s AUM has a role to play in liquidity, it has no direct relation to the fund’s performance…

Is it safe to invest in a mutual fund scheme with very little assets under management (AUM) as compared to its peers? For example Quantum Long Term Equity has got a good track record and 4 star rating but has AUM of only Rs 76 crore?- Viraj Namshikar

Mutual fund performance depends on the fund’s investment mandate which could mean it is a large-cap or a mid- and small-cap fund and invests accordingly, the market conditions, the economic factors and the fund manager’s skills in stock selection besides other related factors. Though, the AUM has a role to play in a fund’s ability to manage liquidity, there is no clear evidence that a fund with a higher AUM is an out performer compared to a fund with a small AUM. You are right in stating the case of Quantum Long Term Equity, which is a less than Rs 100 crore, yet has been a consistent good performer and hence highly rated. If you are looking at safety in mutual fund investments, you should be aware that all mutual funds are exposed to risks that vary depending on the fund type, but it has no direct relation with the AUM of a fund scheme.

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