Should the AUM of the fund be looked at while selecting a fund? How big is too big?
-Vidyasagar
This is a question which will vary depending on the kind of fund. If I am investing in a liquid fund, I will say the bigger it is the better it is. It will have a far greater stability to withstand a shock or a credit exposure which doesn't work out nicely. When it comes to a small cap fund, I would say it is like a winner's curse. A small cap fund gets more money when it does well. And because of more money it becomes unmanageable. There could be liquidity issues. I won't bother in case of a large cap fund. A largecap fund, having Rs 15,000-20,000 crore, can also be managed actively. The fund manager preferences are reflected there and there won't be liquidity issues. So, it varies depending on the type of fund.
Generally speaking, I would say that for a large cap fund Rs 35,000-40,000 crore might still be good. For a multi cap fund, I think Rs 20,000 crore could be the ceiling. And for a small cap fund, AUM of beyond Rs 3000-5000 crore would be difficult to manage.
This article was originally published on December 20, 2017.
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