HDFC Mid Cap crosses ₹1 lakh crore AUM: Should investors worry that a mutual fund has become too large? Experts explain

HDFC Mid Cap Fund has crossed the ₹1 lakh crore AUM milestone, becoming the fourth active mutual fund scheme to reach this level after Parag Parikh Flexi Cap Fund, HDFC Flexi Cap Fund and HDFC Balanced Advantage Fund. The milestone has also raised a question for investors: can a mutual fund become too large to deliver strong returns?

Wealth managers and investment strategists say investors should not avoid a fund simply because of its size. However, a very large corpus can matter in segments where the underlying market has limited depth or liquidity, making it important to look beyond AUM when evaluating a scheme.

Does a large AUM hurt mutual fund returns?

Bharath Rathore, executive director at Anand Rathi Wealth, said investors should not avoid a mutual fund simply because its AUM has crossed ₹1 lakh crore. Fund size, he said, does not by itself determine performance.

“Funds of similar AUM may deliver very different outcomes,” Rathore said. He pointed to the large-cap category, where ICICI Prudential Large Cap Fund was among the top performers in 2025 despite being the largest fund in its category, while another large fund, Axis Large Cap Fund, delivered below-median performance.

This suggests that portfolio decisions, rather than corpus size alone, remain the key driver of returns.

Rathore also said large AUM does not necessarily prevent a fund from generating alpha over the long term. In categories such as mid-caps, where schemes have to maintain at least 65% exposure to mid-cap stocks, fund managers still have room to deploy the remaining allocation across other market-cap segments.

Sriram BKR, senior investment strategist at Geojit Financial Services, however, said size can become a concern when a scheme operates in a segment with limited market depth or liquidity.

“If a scheme’s AUM becomes exceptionally large, then deploying the funds would become difficult, if the target segment of that fund has limited depth/liquidity,” Sriram said. But where the underlying market has sufficient depth and can absorb the flows, a large corpus need not become a problem.

Data also does not show a straightforward relationship between AUM and underperformance. Sriram noted that among the top 10 performing funds over three- and five-year periods across flexi-cap, multi-cap, mid-cap and small-cap categories as of June-July 2026, several had AUM rankings within the top 10 or above their respective category averages.

What should investors look at instead of AUM?

Both experts said investors should look beyond the size of a mutual fund when making investment decisions.

Rathore recommends assessing risk-adjusted return measures such as the Sharpe and Sortino ratios, the fund's ability to generate alpha consistently across market cycles and the quality of its underlying portfolio.

Sriram similarly highlighted consistency of performance against peers, quality of returns and portfolio quality. Investors should also examine the Information Ratio, which compares a portfolio's performance against its benchmark relative to the volatility of that excess return. He also suggested looking at active share and how the portfolio's positioning has translated into returns.

For investors worried that a fund has simply become too large, the advice is therefore not to exit based on AUM alone.

“Investors should not judge a fund by how large it has become but by how well it is being managed,” Rathore said.

Sriram said investors should instead assess the fund's historical consistency, ability to beat its benchmark, downside protection, performance relative to peers, suitability to their risk profile and investment horizon.

In other words, a ₹1 lakh crore AUM may be worth monitoring, particularly in less liquid market segments, but it is not, by itself, a sell or avoid signal.