Mutual fund schemes grow in size with inflows and mark-to-market gains. Increasing assets is not a cause of concern for large-cap schemes but it makes difference in mid and small-cap counterparts. Liquidity is the biggest challenge in the two. It impacts portfolio sizing and the schemes are forced to deploy the corpus in more number of stocks, which leads to over diversification. Illiquidity also reduces the flexibility to exit at a reasonable impact cost. It may be a bigger concern in a downturn. Lack of liquidity impacts the ability to take risks and generate higher returns. Also, the participation in the IPO market is also limited for these schemes.