Impact of High AUM on Mutual Funds
1. Considered Trustworthy: Mutual fund schemes with larger AUMs are considered more trustworthy by the investors as they have higher investor participation. It is generally presumed that scheme with a higher AUM will deliver better returns as a fund’s higher AUM will cover all the funds expenses easily and can result in generating better returns than a fund with a small AUM.
2. Influences Debt Funds: It is to consider, that AUM in debt fund is more important as compared to equity funds as debt fund with more assets can spread the expense in a better manner and helps in increasing returns. However, in practical aspect higher AUM does not assure any assured returns, in some cases funds with small AUM can generate better returns for its investors rather than funds with higher AUM.
3. Key Deciding Factor: AUM is seen as a deciding factor by many investors but it should not be seen as the only factor while deciding the mutual fund in which you want to invest in. AUM can not be the only factor to evaluate any mutual fund’s performance. Investors might consider investing in mutual funds with high AUM as it provides a sense of trust to investors about the performance of both AMC and mutual fund, but it is not important that a fund with higher AUM will surely result in assured returns.
4. Consideration of Other Factors: It is important to give due consideration to the fact that any fund’s performance is based on how it is managed and synergised by the fund managers with the investment objectives of investors, skills and efforts made by the management is crucial in determining fund’s success. Investors should also consider the returns generated by the fund over time compared to its benchmark, the risk associated with the fund, the history, and the expertise possessed by the fund manager.