Should you consider the size of mutual funds (AUM), when investing?

Should you consider the size of mutual funds (AUM), when investing?

The fund size, or AUM, is often overlooked when discussing the many factors that influence the selection of mutual funds. AUM is probably the most important parameter in fund selection.

Although most investors view fund size as a key factor in mutual fund investments, some are unsure about its importance. To be able to invest smartly and profitably, it is important to understand the AUM and fund size of Mutual Funds. I will therefore cover the basics of AUM as well as the role it plays when selecting mutual funds. Continue reading!

What is the Fund Size or AUM?

Assets Under Management, or AUM, refers to the total market capital of assets managed by the mutual funds. Assets under management, or fund size, is simply the total market value of mutual funds in the current markets. The Fund Manager, an expert in managing these underlying assets, makes all the important decisions for the mutual fund investor.

If you are looking for insights into the fund house's performance and success, AUM can be a great tool. The size of the funds, or Assets Under Managed, can also reflect how a fund house performed in comparison to its competitors. The AUM of mutual funds can provide investors with insight into the mutual fund's returns. You can use these earnings in three different ways.

  • Dividend investors
  • For additional earnings, reinvest in securities
  • As per an investment mandate, holding

The growth strategy of both the fund house or the underlying company will determine which of these three actions you choose.

The question is: Should you consider Assets under Management when investing in mutual funds.

The type and size you invest in will determine the decision.

  1. Equity funds
  2. Debt funds
  3. Small-Cap Funds
  4. Captive funds

Equity funds

If you are looking to invest in equity mutual funds, your focus should be on the consistency of the fund in generating returns as well as how it complies with investment mandates.

AUM can be used to invest in equity mutual funds. How well a mutual fund performs in market fluctuations will determine the consistency of returns. An equity mutual fund is good if it generates consistent and appreciable returns regardless of its fund size or relationship.

Debt funds

To manage their returns and distribute dividends to investors, debt mutual funds heavily rely on their AUM. A debt mutual fund with a large fund size or greater assets under management will be able to spread fixed fund expenses more evenly among its investors. Larger funds will result in lower expenses per person, which is reflected in fund returns.

A larger fund house with more assets or fund size can help negotiate better deals with debt issuers.

Funds for Small and Mid Cap

Mid-cap and small-cap companies are affected by large AUM. This is due to the fact that small-cap companies often invest in companies with high growth potential, which are still growing. This makes it difficult to buy and sell shares in small, but high-growth companies. It also impacts liquidity.

Cash influx to small-cap funds is often restricted beyond a certain point. This happens when assets under the management of a mutual fund exceed a certain level. This restriction is primarily due to the fact that a larger fund would indicate that the fund is a major shareholder of the company, which could restrict share trading during market fluctuations. A growing AUM means that the fund manager must make larger investments in the underlying stocks. However, this will be difficult for him to navigate. Mid-cap companies, on the other hand, have greater liquidity and can be accommodated by fund managers.

Large Cap Funds

Although it is generally believed that the bigger the fund, the better it is, this is still not proven. Comparing large-cap mutual funds with different sizes will yield results that show that the fund's size doesn't have any effect on the mutual funds' returns. Mirae Asset India Opportunities fund, which has an AUM of Rs. 2,000, is one of the largest large-cap mutual funds. 4738 Crores has performed better than the largest large-cap fund, HDFC Top 200 with an AUM Rs. 11,000 Crores. A general rule of thumb is that large-cap funds can accommodate high AUM.

The Impact of Higher Assets under Management on Mutual Funds

The mutual fund's performance is independent of its assets under management and fund size. The behavior of mutual funds will change as AUM grows. There is no one-size-fits-all rule. Higher assets under management can lead to different types of mutual fund behavior.

Fund performance is largely determined by the skills of the fund manager, who makes the right decisions when it comes to exiting or entering a mutual fund. Fund managers are experts who drive the fund with their abilities and generate significant returns, even in volatile markets.

To Summerize

The assets under management are a reflection of the total market capitalization for a mutual fund. Instead of just focusing on AUM, investors should consider other factors that have a greater impact on the performance of mutual funds. Assets Under Management is a great way to see the popularity of mutual funds and can impact your decision about whether or not you want to invest in them.

Best Wishes For Investment and Good Luck For The Future!

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