The Hindu Business Line : Does asset size matter?

With the economy barely recovering from the recessionary tailspin, it suddenly seems like small is beautiful. This also appears to be applicable to the asset base managed by mutual funds, going by the performance of individual mutual fund schemes. In the market correction last year and in the recent rally, mutual funds performance suggests that a higher asset size did not necessarily translate into better returns.

The schemes with higher asset sizes were not outperformers in the ongoing rally; but they did score over the category average of diversified funds over three- and six-month periods, aided by substantial cash in their portfolios. Among the funds with asset bases of Rs 1,900 crore and above Morgan Stanley was the only fund to generate negative return over a year.

The top and bottom ten of the 260 diversified schemes in terms of assets under management have been taken up for evaluating performance over three, six and twelve month periods.

Of the top ten, schemes from Reliance Mutual Fund held higher cash position than their peers in the May 2009 portfolio. Reliance Vision, Reliance Growth and Reliance Equity Fund held 17-23 per cent in cash of net assets and they trailed category average in three- and six-month periods. However, over a one-year period, they outpaced the category average (1.1 per cent).

But funds such as HDFC Top 200, HDFC Equity, Franklin Flexi Cap and Magnum Tax Gain all had cash position between 2-9 per cent and they bettered category average of diversified funds by 5- 10 percentage points over a three-month period, and 8-15 percentage points over a one-year period.

Smaller asset base

Schemes with smaller asset bases between Rs 100 crore and Rs 150 crore were good performers over a shorter period of three months, but they under-performed larger players during a one-year period and several of them failed to clock a positive return.

Funds such as Taurus Starshare and Tata Contra scored over the bigger players by good margin in three and six months period but both generated negative returns over a one-year period.

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