Should you worry while investing in mutual fund with highest AUM? Expert suggests SIP tweak and strategy

Planning for retirement through mutual funds has become a preferred route for many investors, especially those relying on systematic investment plans (SIPs) with gradual step-ups. However, questions around fund selection, portfolio allocation, and the impact of rising assets under management (AUM) often create confusion. A recent query highlights how investors can navigate these concerns while staying focused on long-term goals.

The same is the case with Kumari Geeta, an art teacher from Delhi and a viewer of The Money Show on ET Now, who has been investing regularly through SIPs across categories including midcap, smallcap, and flexicap funds.

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Her monthly investments include Rs 6,000 in Edelweiss Midcap Fund, Rs 4,000 in Nippon India Small Cap Fund, and Rs 5,000 in Parag Parikh Flexi Cap Fund. She also plans to start a Rs 3,000 SIP in Bandhan Small Cap Fund and has exposure to precious metal-based ETFs. Alongside, she contributes Rs 10,000 per month to PPF, with a total mutual fund portfolio of around Rs 1 lakh.

Her primary concern revolves around the rising size of the Nippon India Small Cap Fund. The scheme is currently the largest fund in the smallcap funds category, with an AUM of Rs 61,808 crore as of March 31, 2026. She worries that the growing size may impact the fund’s ability to generate strong returns going forward.

Addressing this, financial expert Harshvardhan Roongta noted that such concerns are partly valid. In the smallcap space, deploying large amounts of money can be challenging due to limited high-quality investment opportunities and relatively smaller company sizes. Large inflows into a single stock can significantly move prices, making it harder for fund managers to maintain performance consistency.
“Yes, so, her concern regarding investing in the Nippon Smallcap is that the scheme’s AUM has become very large. So, she assumes and, believes that it is difficult for the fund manager to generate returns. So, the AUM currently is about Rs 67,000 to 68,000 crore,” the expert said.
“Now to a certain extent I would agree with her because in the smallcap, in a pure smallcap fund to find opportunities to invest and deploy money can get challenging given that the number of companies that a fund manager would ideally want to pick in that category would be very limited and the size being smaller,” the expert further said.
That said, he emphasised that while Geeta may consider redirecting fresh SIPs to another smallcap fund like Bandhan Small Cap, there is no need to exit her existing investments in Nippon India Small Cap Fund. The scheme remains a strong performer in its category, and staying invested allows her to benefit from its long-term potential.

“All the accumulated corpus in the Nippon Smallcap she can leave it as it is, it is a brilliant scheme within the category, so you do not need to make switches onto the existing accumulated fund value of the Nippon Smallcap,” the expert commented on Nippon India Small Cap Fund.

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On the broader portfolio strategy, Geeta plans to invest Rs 16,000 monthly after adjustments and increase her SIP amount by 5% every year. Assuming a 12% annual return over a 15-year period, this disciplined approach could help her build a corpus of around Rs 1 crore.

Without the annual step-up, the estimated corpus would be closer to Rs 80 lakh, highlighting the significant impact of increasing contributions over time.

However, Roongta cautioned that a Rs 1 crore target may not be sufficient for retirement after 15 years due to inflation. Investors need to account for the future value of money and reassess whether their target corpus aligns with their long-term financial needs.

Overall, the case underscores the importance of balancing portfolio diversification with realistic expectations. While tactical changes such as redirecting SIPs can help optimise returns, staying invested in well-performing funds and maintaining a disciplined, step-up strategy remains key to achieving long-term financial goals.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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