How a mutual fund’s AUM impacts returns: Should investors worry when it grows too large?

In the last five years, the mutual fund industry’s assets under management (AUM) have more than doubled from around ₹40 lakh crore to ₹85 lakh crore. During the same time, the AUM of individual schemes has also increased. For some schemes, AUM has multiplied and become so large that questions are being raised about whether it will affect scheme returns. Should investors worry when the AUM is too large? In this article, we will examine the performance of some schemes that are the largest in their category.

Mutual Funds Sahi Hai

Over the years, the ‘Mutual Funds Sahi Hai’ campaign has done wonders for the industry. The campaign has created the necessary awareness among retail investors about investing in mutual funds. Retail investors have firmly adopted the Systematic Investment Plan (SIP) route of investing in mutual funds. The SIP investment numbers have not just sustained over the years, but have gone from strength to strength.

It has led to overall growth in the mutual fund industry and in individual schemes within the industry. Over time, some schemes have grown so large that some investors wonder whether scheme size will impact the returns. So, let us look at the performance of some schemes with the highest AUM in their respective category.

Performance of the largest schemes

Let us start with the ICICI Prudential Large Cap Fund, the largest in the large-cap category, with an AUM of ₹80,960 crore.

Source: Value Research Online website

Note: Data as of 14 August 2026. The 1-year returns are absolute. The 3-, 5-, and 10-year returns are CAGR.

The table above shows that the scheme’s performance has lagged the overall category and the BSE 100 TRI performance in the last one year. However, over the 3, 5, and 10-year periods, the scheme has consistently outperformed the large-cap category and the BSE 100 TRI.

In the mid-cap category, the HDFC Mid Cap Fund is the largest, with an AUM of ₹1,05,143 crore.

Source: Value Research Online website

Note: Data as of 14 August 2026. The 1-year returns are absolute. The 3-, 5-, and 10-year returns are CAGR.

The table above shows that the scheme outperformed the BSE 150 MidCap TRI in the last one year, but lagged the mid-cap category by a couple of percentage points. However, over the last 3, 5, and 10-year periods, the scheme has consistently outperformed the mid-cap category and the BSE 150 MidCap TRI.

In the small-cap category, the Nippon India Small Cap Fund is the largest, with an AUM of ₹78,957 crore.

Source: Value Research Online website

Note: Data as of 14 August 2026. The 1-year returns are absolute. The 3-, 5-, and 10-year returns are CAGR.

The table above shows that the scheme outperformed the BSE 250 SmallCap TRI in the last one year, but lagged the small-cap category by a couple of percentage points. However, over the last 3, 5, and 10-year periods, the scheme has consistently outperformed the small-cap category and the BSE 250 SmallCap TRI. Over the 5 and 10-year periods, the scheme’s outperformance margin is around 5%, which is quite decent.

The scheme’s strong returns and consistent outperformance compared to the small-cap category and the BSE 250 SmallCap TRI attracted many investors. As the scheme’s AUM grew and opportunities to deploy investor money reduced, subscriptions were limited. From 7th July 2023, fresh/additional subscriptions were stopped till further notice.

Fresh registrations through SIP without an initial investment or STP were continued, with a limit of ₹5 lakh per day per PAN. From 22 March 2024, fresh registrations through SIP or STP were continued with a reduced limit of ₹50,000 per day per PAN, down from the earlier limit of ₹5 lakh per day per PAN.

In the flexi-cap category, the Parag Parikh Flexi Cap Fund is the largest, with an AUM of ₹1,48,429 crore.

Source: Value Research Online website

Note: Data as of 14 August 2026. The 1-year returns are absolute. The 3-, 5-, and 10-year returns are CAGR.

In the last one year, the scheme has not delivered any returns and has underperformed the flexi-cap category and the BSE 500 TRI by a big margin. However, in the 3, 5, and 10-year categories, the scheme has outperformed the flexi cap category and the BSE 500 TRI.

Has the large AUM size impacted returns?

We have seen the returns given by the four largest funds in their respective categories. In the last one year, the scheme returns have been lower than the category. However, over the medium- to long-term, the schemes have outperformed their respective category and benchmark index. Also, over the last one year, the market has been going through a difficult phase due to geopolitical conflicts, US tariffs, high crude prices, etc.

When evaluating a scheme’s performance, an investor must not look at the returns in isolation. The investor must consider overall market performance, liquidity (investment flows), domestic and international environment, etc.

Large-cap funds can absorb higher inflows, as the money can be deployed in large-cap stocks, which have a higher market capitalisation and liquidity. However, the situation is different for mid- and small- cap funds. The overall market capitalisation of mid- and small-cap stocks is far lower than that of large-cap stocks, and the liquidity is also lower.

For a large-cap fund, deploying an AUM of ₹1 lakh crore may be manageable. But a small-cap fund may find it challenging to deploy such a large AUM. The fund manager may have to go for higher diversification than required or maintain higher cash levels, which may impact the scheme’s performance.

Hence, for a mid- or small-cap scheme, deploying scheme inflows beyond a point may become challenging. If the scheme AUM becomes too large to impact the scheme’s performance, the fund manager will soon realise it and take corrective action. The scheme will limit investments or stop them.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached on LinkedIn.