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Assets Under Management

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Assets Under Management is an important factor for mutual fund scheme selection.

In general, we should opt for a scheme that has healthy assets that are managed by the AMC.

Too low or too high AUM is a trouble.

When the AUM are too low, the fund manager might not have sufficient cash to invest in opportunities that he see.

Also, the quantum of monthly additions to the scheme by way of SIPs will be low.

Further, the expense ratio for low AUM schemes will be higher than those with larger AUM.

On the other hand, a too high AUM is also not a good sign.

In this case, the scheme might have sufficient cash but the fund manger will have increased pressure to deloy the funds in assets and in most cases, quality and returns of the scheme would get hurt.

This is one reason of the several reasons why schemes such as DSPBR Microcap Fund, Reliance Growth Fund etc. have imposed restrications on fresh investments when the scheme size swelled.

How much should be the ideal size?

There is no fixed number for this.

However, in India, there are expense ratio slabs that are fixed by the regulators.

As the AUM goes higher, the expense ratio comes down (i.e lesser burden on the scheme in the form of fund management expenses)

The expense ratio gets capped at Rs. 500 Crores which means beyond that level, the expense ratio will get capped.

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