Size of Asset under Management and Performance of Mutual Fund

Abstract

Various studies have been done to determine the impact of AUM (Asset Under Management) over performance of mutual fund. Results are conflicting in nature. Studies says that lower size of fund under management will lead to in efficiency and with increased cost of managing fund in terms of research and other expenses; performance will go down whereas funds with too big asset under management tends to incur excessive cost leading to negative marginal return. This paper studied the relationship between performance of mutual fund and asset under management. Three major indicators of mutual fund performance namely Sharpe’s, Treynor’s ratio and Jensen’s Alpha were considered. It was observed that schemes with lowest AUM category were least performer proving the earlier studies whereas schemes with largest AUM category has outperformed the others showing that returns tend to increase with increase in AUM, but failed to define size of too big AUM for underperformance. This opens a scope of further studies to define the size of AUM to be considered as too big.