Does AUM of Mutual Fund matters? Mutual Funds Investing

Generally it’s advised to invest in mutual funds having higher AUM but it’s NOT true for small cap mutual funds.

Let me explain with an example;

Let’s say there are 2 small cap mutual funds. fund A that has AUM of 100 Cr and mutual fund B that has AUM of 5000 Cr, basically 50 times bigger.

Now both mutual funds decide to allocate 10% of their AUm to a very promising small cap stock that has a market cap of 200 Crores.

So mutual fund A will need to place an order for 10 Crs but mutual fund B will need to place an order for 500 crores.

Because the market cap of that small cap stock is 200 Crs, Mutual fund B will not be able to place an order for 500 Crs and they will miss out on this great opportunity.

So higher AUM has made it difficult for mutual fund B.

So next time when you invest in a small cap mutual fund, please remember higher AUM is not necessarily a good indicator.

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Indian stock market and mutual funds

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