Don’t just chase the biggest funds—chase the best fit for your goals.

Many investors assume that the largest mutual funds are the safest, smartest, and most reliable.

After all, thousands of others have already invested. Doesn’t that mean the fund must be doing something right?

Yes—and no.

While a large fund size can signal trust and track record, it can also come with certain limitations—especially in certain categories.

Let’s break down how fund size affects performance, when it matters, and when it’s just a number.

1. What Do We Mean by Fund Size?

Fund size refers to the Assets Under Management (AUM)—the total amount of investor money in a particular mutual fund.

For example:

• Small-cap Fund A with ₹800 crore AUM

• Large-cap Fund B with ₹30,000 crore AUM

It reflects:

• Investor confidence

• Longevity of the fund

• Popularity in past performance cycles

But bigger AUM ≠ better performance, especially if the fund struggles with agility or deploys assets inefficiently.

2. Pros of a Large Fund Size

✅ Economies of Scale

Bigger funds can operate with lower expense ratios due to volume. This benefits long-term investors.

✅ Track Record and Trust

Large funds usually have a long performance history, which allows you to judge consistency across market cycles.

✅ Stability in Inflows and Outflows

A large fund is less affected by short-term redemptions or fresh inflows.

✅ Better Access to Market Opportunities

Large AUM funds often get preferential allotment in IPOs, bond issues, or bulk deals.

3. When Large Fund Size Becomes a Challenge

⚠️ A. In Small- and Mid-Cap Funds

In categories like small-cap and mid-cap, size can become a hindrance:

• Fund managers may struggle to deploy large amounts into small-cap stocks without influencing the price

• Liquidity becomes an issue—smaller stocks can't absorb huge buy/sell volumes

• To manage risk, the fund may drift into larger stocks, diluting its small-cap identity

⚠️ B. Slower Execution

Large funds can be less nimble. Taking tactical calls, reallocating quickly, or exiting illiquid positions becomes harder.

⚠️ C. Benchmark-Hugging

To manage large sums safely, some funds start hugging the index closely, reducing the potential for alpha generation (outperformance over benchmark).

4. Categories Where Fund Size Matters Less (or Helps)

✔️ Large-Cap Funds

Bigger size is usually manageable, as large-cap stocks have sufficient liquidity

✔️ Debt Funds

Larger funds benefit from better bond pricing and access to top-rated papers

✔️ Index Funds/ETFs

Bigger AUM here is often a plus—indicating better tracking, liquidity, and tighter spreads

✔️ Hybrid Funds

Can benefit from scale as long as asset allocation remains within mandate

5. How to Evaluate Fund Size Alongside Other Factors

🔎 Compare Within Category

Don’t compare the size of a small-cap fund with a large-cap one. Compare apples to apples.

🔎 Check Style Drift

Has the fund started investing outside its intended category due to size constraints?

🔎 Look at Portfolio Turnover

Is the manager still active and agile? Or has the fund become passive in behavior?

🔎 See if Returns Have Plateaued

Some large funds perform well up to a certain AUM, then struggle to maintain past momentum.

6. So, Is Bigger Bad?

Not at all. But it’s not automatically good either.

Fund size should be seen in context:

• Is it manageable within the fund's category?

• Does the manager have a history of handling scale well?

• Is the fund still agile, or has it become slow and index-hugging?

7. When Small Funds Can Be Smart Choices

🟢 If you’re okay with a slightly higher expense ratio

🟢 If the fund has a focused, niche strategy

🟢 If it’s in a high-agility category (like small/mid-cap)

🟢 And you’re willing to ride some short-term volatility

Some of the best-performing funds in recent years started out small and nimble—before growing big.

TL;DR — Too Long; Didn’t Read

• Fund size (AUM) reflects investor confidence, but doesn’t guarantee better returns

• In large-cap and debt funds, big size can be beneficial

• In small/mid-cap funds, too much AUM can hurt agility and dilute returns

• Always evaluate fund size alongside manager skill, performance, expense ratio, and consistency

• Bigger isn’t better—it’s just another metric to weigh in your decision

📩 Curious if your fund has grown too big for its own good? Let’s review your mutual fund holdings and see where size is helping—or hurting—your portfolio’s performance.