STRAP: Investing or exiting based on short-term performance, seen during bull and bear phases, is best avoided. Also consider the portfolio, as the outperformance may be due to investments in risky bets.

A surge in inflows has increased the size of mutual funds (MF) across categories in recent years, taking the assets under management (AUM) of the industry to within striking distance of Rs 40 lakh crore.

As the following table shows, the size of the largest funds in key categories — large-cap, mid-cap, small-cap, and flexi-cap — has grown as much as 1.5-3 times in the past five years.

But does the large size of a fund denote better performance, or does a smaller fund mean superior agility and performance? A CRISIL Research study throws up valuable pointers.

Small- and mid-size funds generate superior returns

To analyse how large, mid-size, and small funds have performed over the years, the study collated the AUM data for four categories — large-cap, mid-cap, small-cap and flexi-cap funds — for the period starting post re-categorisation of funds (i.e., January 2018), to September 2022, on a quarterly frequency.