AUM stands for Asset Under Management. It is the total value of a mutual fund’s holdings, which includes the value of its assets and liabilities. The AUM is calculated by taking the total market value of all the securities and other assets held in the portfolio of a mutual fund.
AUM is an important metric for mutual funds as it is used to determine the size and growth of a fund and to assess its ability to attract and retain investment capital. The higher the AUM of a mutual fund, the more diversified its portfolio is likely to be and the greater its ability to generate income from its investments. This is why the AUM is often used as a rough indicator of the strength and stability of a mutual fund.
Assets under management Example
Let’s say that a mutual fund company manages a variety of investment products, including mutual funds, exchange-traded funds (ETFs), and other investment vehicles, and the total market value of all the assets in those funds is Rs 10 crores. Then, the AUM of the mutual fund company is Rs 10 crores.
Importance of AUM in mutual funds
The performance of equity mutual funds is not solely dependent on the assets under management but instead is primarily driven by the fund manager’s investment decisions and market conditions. The size of the fund may impact the investment opportunities available to the manager, but it is not a determining factor in the fund’s overall performance.
Importance of AUM in Large-Cap Funds: In the case of large-cap funds, higher assets under management are generally preferred by investors as it reflects the success of the fund. However, a higher AUM does not always equate to higher returns and is dependent on multiple factors such as market conditions, fund management, etc.
Importance of AUM in Small-Cap Funds: The assets under management have little to no effect on small-cap funds as these funds typically avoid large lump-sum investments and focus on the Systematic Investment Plan (SIP) model. The purpose of this approach is to prevent the fund from becoming a dominant shareholder in any one company.
Importance of AUM in Debt Funds: When investing in debt funds, the assets under management are an important consideration for the investor. A fund with larger assets under management can spread its fixed expenses across a larger pool of investors, leading to a lower expense ratio and higher returns for the investor.
How does AUM affect mutual funds?
Here are some of the ways in which AUM can affect mutual funds:
Expense Ratio: A larger AUM can help bring down the expense ratio of a mutual fund as the fixed expenses can be spread across a larger pool of assets. This results in a lower expense ratio, which is a key factor in determining the returns for investors.
Fund Management: The performance of a mutual fund is heavily dependent
on the fund manager and the investment decisions they make. A higher AUM can provide a fund manager with more resources and flexibility to pursue opportunities in the market. However, the success of a mutual fund ultimately depends on the skill and expertise of the fund manager.
Investment Style: The investment style of a mutual fund, such as whether it focuses on growth or value stocks, can also impact its performance. The AUM of a mutual fund may have an indirect impact on its performance based on its investment style and how it aligns with the current market conditions.
Diversification: A higher AUM can allow a mutual fund to diversify its investments across a wider range of stocks, bonds, and other securities. This can help to mitigate the impact of market volatility and reduce the risk of loss for investors.
How to calculate aum in mutual fund? – Asset Under Management Formula
The Assets Under Management (AUM) of a mutual fund company are calculated by adding up the total value of investments in a fund. This value changes constantly due to the inflows and outflows of money from existing and new investors, as well as the returns generated by the fund. A rise in returns leads to an increase in AUM, while negative returns or redemption of shares will cause a decrease in AUM. It is important to note that a change in AUM does not necessarily equate to a change in the performance of the fund.
Top Asset Management Companies
The top 10 Asset Management Companies (AMCs) in India as of 2023, based on Assets Under Management (AUM), are
- SBI Mutual Fund
- HDFC Mutual Fund
- ICICI Prudential Mutual Fund
- Nippon India Mutual Fund
- Axis Mutual Fund
- DSP BlackRock Mutual Fund
- Kotak Mahindra Mutual Fund
- IDFC Mutual Fund
- L&T Mutual Fund
- TATA Mutual Fund
Quick Summary
AUM stands for Asset Under Management. It is an important metric for mutual funds as it is used to determine the size and growth of a fund and to assess its ability to attract and retain investment capital. The higher the AUM of a mutual fund, the more diversified its portfolio is likely to be and the greater its ability to generate income from its investments. This is why the AUM is often used as a rough indicator of the strength and stability of a mutual fund.
Frequently Asked Questions
1. What is a good AUM for a mutual fund?
There is no specific range that can be considered a good AUM for a mutual fund because different funds may have different goals, strategies, and risk levels. A higher AUM can be an indicator of a well-established fund with a large number of investors, but it does not guarantee better performance or lower risk. Investors should consider a number of factors when evaluating a mutual fund, including its investment objectives, portfolio holdings, historical performance, fees, and risk profile.
2. What happens when AUM is high?
When the AUM (Assets Under Management) of a mutual fund is high, it generally indicates that more investors trust the fund and its fund management company with their money. However, having a high AUM does not guarantee better returns or outperformance. It is only one of many factors to consider when evaluating a mutual fund. Other factors like the fund manager’s credibility, consistency in returns, and expense ratio should also be taken into account.
3. Which MF has highest AUM?
SBI Mutual Fund has the highest AUM of Rs. 647064.29 Cr.
