Sunday, June 24, 2012

BIG Fund Size is Also a Problem

Is a Big Corpus good or bad for a Fund???
Let us find out…
Sandeep Kumar asked :
All keep on insisting that one should not go for the fun which has grown to a huge corpus, as SBI Magnum Tax gain. It has been mentioned again and again that such funds tend to become imbalanced and it becomes difficult to manage such heavy funds by the Fund manager.
On the other hand, all sites are prescribing DSP rock top 100, Which is again going large in corpus. If I invest rs 2000 as SIP for nest twenty years, Its impossible to get suitable returns as this fund will be heavily burdened that time. So, How to survive this BIG corpus Problem ?
Please HELP. Thanks a Lot.
Sandeep Kumar”
Dear Sandeep,
     Yes, you are right. A Big corpus makes it unwieldy for a Fund Manager to manager his Fund in prudent fashion. Likewise a Small Corpus makes it difficult to make Large Purchases during attractive downturns.
Thus, it is essential that AMCs set up a Cap for each of their Funds, wherein, if the Fund Corpus goes above their comfort zone, they stop Fresh Subscription into the Fund.
     This strategy was sucessfully done by the IDFC Premier Equity Fund. Inspite of Bullish Markets, they resisted the attraction of Fresh Subscription and allowed fresh money to come in only through SIPs which allowed the Fund to perform better most of its peers.
Even Reliance Growth Fund once stopped Fresh Subscription in 2005 for a brief period.
In fact, recently, a Fund Manager confided in me, “Large Corpus means less avenue to invest, especially in a Sector Fund”.
Even Prashanth Jain of HDFC Mutual Fund has admitted “Managing Large Corpus needs more effort when changing the portfolio”.
Arindam Ghosh of Mirae Asset says “Schemes with too large Asset Base can pose bigger challanges”
Dhirendra Kumar of Valueresearch says “An investor must be watchful as too big asset size can be problematic for a scheme”.
But, what I in finality say is…“Size should be secondary consideration while choosing a fund. Before investing in a fund, check its parentage and consistency across market cycles.
If you are particular about Fund Size, then chose a fund which is nearer the Category Average.  
     As for SBI TaxGain it has had a unwieldy Corpus since more than 2 years now. However, the Falling Markets has ensured that its Fund Size is just about the Manageable Limit.
     As for DSP Blackrock top 100 fund, you can consider going for investments, however, do make periodic reviews and make appropriate adjustments.
     Your mutual fund investments need to be periodically monitored. More than the fund size, you will need to keep track of its performance. If you notice a significant degradation of performance, then you will need to find an another fund to invest in. Please note, performance is the key (though fund size might indirectly affect performance).
     Even Mirae Asset too has been very successful because of small size which allows it to be nimble-footed. I like their Mirae Asset India Opportunities Fund very much.
     AMCs nowadays are awake of the problem of Big Corpus/Fund Sizes and I am sure that they will not allow their Fund to become So Big that it becomes impossible to manage.
     Go on, invest in DSPBR Top 100 Fund.
Best of luck,
Srikanth Shankar Matrubai

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