Fund size and its impact on fund performance: An empirical evidence from selected Indian mutual fund companies

Abstract

Retail investor always faces dilemma to choose the funds for investments from a plethora of mutual fund schemes available in the market. His decision is driven by the higher returns earned on the fund. The returns earned on the fund are influenced by various fund attributes. Fund size is considered to be an important aspect having an effect on the returns. Apart from fund size, there exist other fund attributes that drive the performance of mutual funds, which include fund flow, expense ratio, portfolio turnover rate, investment style, weightage given to the assets in the portfolio etc. The principle aim of this paper is to evaluate the impact of fund attributes on the performance of the mutual funds. Fund characteristics included in the study are Fund Size, Fund Flow, Fund Age, Portfolio Turnover Rate and Expense Ratio. The study aims to cover a period of 5 years ranging from 1st April 2007 to 31st March 2012. The paper makes an attempt to answer these questions: Does a huge asset base impede performance? The findings reveal that, increase in the fund inflow erodes the performance of the mutual funds. Increase in portfolio turnover rate increases the expense ratio indicating that, higher trading activity will incur higher costs.