How mutual fund managers have handled AUMs bloating due to huge inflows

The corpus of many equity funds has ballooned sharply amid galloping share prices and continuous inflows. Three years ago, only two equity diversified funds boasted assets of more than Rs 10,000 crore. Now, there are 11 such funds. This rapid surge in funds’ assets under management has induced many fund managers to tweak their portfolios. The impact has been particularly felt in the mid- and small-cap oriented schemes. In many cases, rising corpuses has led to bigger portfolios for these schemes, resulting in heavy diversification. Take, for instance, DSP BlackRock Micro Cap, one of the best-performing funds over the past three years, whose size has ballooned from Rs 374 crore in March 2013 to Rs 5,974 crore today. From a basket of 47 stocks, the fund has almost doubled its portfolio size to 87 stocks. Consequently, its portfolio composition has changed drastically, with its top 10 stocks accounting for just 27% of its portfolio, down from 39% five years ago.

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FUNDS’ SIZE HAS BALLOONED SHARPLY
Like DSP BlackRock Micro Cap, many others have had to spread their portfolio thin, resulting in muted exposure to their top bets. “Such portfolio dilution is inevitable beyond a certain corpus size for mid and small-cap funds,” says Kaustubh Belapurkar, Director, Mutual Fund Research, Morningstar Investment Advisor India. Some large-cap funds have also been forced to expand their portfolio. ICICI Focused Bluechip has diluted its portfolio from 29 to 50 stocks in the past five years. Contrastingly, there are also schemes, such as HDFC Large Cap and ICICI Pru Value Discovery, which have cut down portfolio size sharply, resulting in a greater focus on their top stock picks. To a large extent, the size of the underlying portfolio should not matter much for investors, but they should ascertain that there is no substantive style drift—or deviation from mandate— accompanying the larger or smaller portfolio. Only a few fund managers have managed to ensure their funds remain true to their mandate amid increasing fund size.

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