Does the size of a fund affect it's performance?


There has always been a fascinating debate over whether the size of a fund affects its performance? There are a lot of views on this but here are some interesting perspectives from the heads of Indian AMCs and advisors.

Does size impact alpha generation ability of a fund?#MutualFunds

β€” πŸ†ƒπŸ…·πŸ…΄ πŸ…ΌπŸ…΅ πŸ…ΆπŸ†„πŸ†ˆ (@TheMFGuy1) March 13, 2019

It depends on the style; If a fund’s returns/alpha was generated on quick entry and exit and frequent trades, then smaller size helps. For a general Buy and Hold strategy, size is not a issue , but stock picks are.

β€” Anand Radhakrishnan (@Anand_1969) March 13, 2019

Precisely my point. Approaches determine efficacy of size. When growth in AUM comes from an unsustainable approach, then size becomes a challenge. If the approach is solid, size may not be a big drag.

β€” Shyam Sekhar (@shyamsek) March 13, 2019

I think more than size of growth the pace of growth is important too. If a fund is allowed to grow at a decent pace, and if one sticks to a consistent process, then a lot of good can happen

β€” swarup mohanty (@mohanty_swarup) March 13, 2019

Yes, makes it tougher due to impact cost. But contrarian style funds can do it IMO bcos they're not buying what everyone's buying.

β€” Aarati Krishnan (@AaratiKrishnan) March 13, 2019

broadly yes... every strategy / category has an optimal capacity... beyond which, you will see the impact of size.

β€” Radhika Gupta (@iRadhikaGupta) March 13, 2019

Echo that. Every strategy has an optimal capacity.

β€” Vetri Subramaniam (@VetriSmv) March 13, 2019

Funds in small and mid cap segments would get impacted with large sizes as impact costs are high

Empirically - the correlation otherwise is weak
There are large sized funds with good alpha and small sized funds with poor alpha

β€” Kalpen Parekh (@KalpenParekh) March 13, 2019

1. One cannot deny the decrease of flexibility in Fund Management as the size grows.
2. Would be foolish to paint everyone with one brush!

β€” swarup mohanty (@mohanty_swarup) March 13, 2019

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