A fund's assets under management (AUM) does not automatically translate to better investment returns, according to recent analysis. AUM represents the market value of assets managed by a mutual fund scheme but does not guarantee superior performance. As reported by Mint, investors who choose equity mutual funds primarily based on fund size may be relying on the wrong indicator for investment decisions.
The performance gap between fund size and returns becomes evident when examining India's largest equity funds. Parag Parikh Flexi Cap Fund, with an AUM of ₹1,48,429 crore, delivered a negative 2.11% return over the last 12 months. Similarly, ICICI Prudential Large Cap Fund, managing ₹80,960 crore, slipped 1.44% during the same period. In contrast, Nippon India Small Cap Fund, ranking fifth by AUM at ₹78,957 crore, delivered the highest return at 11.71% in this comparison group.
Smaller equity funds have significantly outperformed their larger counterparts in recent returns. Trust MF Small Cap Fund, with an AUM of just ₹2,860 crore, topped the diversified equity fund category with a 33.87% one-year return. This performance is roughly 1/52nd the size of Parag Parikh Flexi Cap's ₹1.48 lakh crore corpus. The pattern continues with Bank of India Small Cap Fund (₹2,819 crore AUM) at 28.83% and Motilal Oswal Focused Fund (₹1,693 crore AUM) at 28.09%. Four of the top five performers had AUMs under ₹3,000 crore, with only Motilal Oswal Small Cap Fund above this threshold at ₹7,605 crore.
Strategic asset allocation plays a crucial role in mutual fund performance, as reported by recent analysis. Strategic asset allocation refers to the pre-established long-term distribution of assets in asset classes like equity, debt, money market instruments, and other asset classes. This allocation is determined at the outset and maintained within defined limits over time, with periodic rebalancing to restore original proportions when market movements alter the balance. Under SEBI regulations, mutual fund schemes must disclose their asset allocation pattern and limits in the Scheme Information Document and provide periodic portfolio disclosures reflecting actual exposure.
