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Does AMC size matter?

Look at the size of a fund rather than the fund house, advises Dhirendra Kumar

Smaller AMCs have delivered superior returns than big AMCs. Given this, should we invest in schemes of smaller fund houses or bigger fund houses?
- Dinesh Kumar Maurya

 

 

Some of the big AMCs, such as HDFC and ICICI, are struggling and their performance has been relatively disappointing than some of the smaller fund houses. However, we can't really postulate this theory that big fund houses are not doing well and small fund houses are delivering superior performance.

I would rather say that when a fund is small in size, it is able to deliver its promise in a much efficient way. However, as the fund's size increases, it sometimes struggles to deliver great returns, especially in the volatile markets. This is because big funds need to invest in big stocks and for big stocks, if you have to derive your returns, then the overall market should really be going up by leaps and bounds. This has not been happening for the past three-four years. On the other hand, if a big fund invests in a relatively cheap stock, the fund would observe the return from this stock when market sentiments for the stock change and more investors buy the stock, thereby leading to an increase in its price.

Thus, I would suggest that you look at the fund size rather than the size of the fund house. Especially when it comes to categories like mid caps and small caps, the big size of funds can be a disadvantage and hence, should be avoided.