Net assets should not be the main criteria to select a fund because not all large funds are excellent performers
10-Jun-2015 •Research Desk
I wish to know what is the significance of the Net assets held by a mutual fund scheme? Is it an important factor for an investor to look at while narrowing down a mutual fund scheme?
- Rahul Rijhwani
The size of the mutual fund indicates its popularity. It also signifies that the fund has performed well over the years. But net assets should not be the main criteria for you to select a fund or even sell it. Not all large funds are excellent performers in their category. Nor are all small funds necessarily bad. We suggest you use returns and the Value Research rating as the main criteria to select funds. Having said this, a very small fund size can be an impediment to a properly diversified portfolio in a debt fund. In the case of micro or small cap funds a very large fund size can lead to dilution in the stock picks.
A sharp drop in net assets of a scheme can be a signal to poor performance. And given that SEBI's expense limits on funds fall with size, funds with higher net assets may also be cheaper to own because of a lower expense ratio.