AUM (Assets Under Management) in a mutual fund refers to the total market value of all assets managed by the fund. It includes both equity and debt investments and serves as an indicator of the fund’s size, performance, and investor confidence.
Table of Contents
What Is AUM In Mutual Fund?
Assets Under Management (AUM) represent the total market value of investments managed by a mutual fund scheme or fund house. This metric indicates fund size, market acceptance, and investment capacity while serving as a performance measurement parameter.
AUM combines total investments from all unit holders, market value appreciation, reinvested dividends, new inflows, and adjustments for redemptions, providing real-time assessment of fund size and market value.
The metric helps evaluate fund stability, operational efficiency, expense management, investment flexibility, market impact capabilities, and overall fund management effectiveness through size-based analysis.
AUM In Mutual Fund Example
AUM (Assets Under Management) in a mutual fund refers to the total market value of the assets managed by the fund. It includes stocks, bonds, cash, and other assets the fund holds for its investors.
For example, if a mutual fund manages ₹500 crores in assets, its AUM is ₹500 crores. This value fluctuates based on market performance and investor inflows or withdrawals.
How To Calculate Aum In Mutual Fund?
AUM calculation involves summing the total market value of all investments, including equity, debt, cash positions, and other securities. Process accounts for daily market movements, investor flows, and portfolio adjustments.
Calculation considers current market prices of all holdings, cash balances, accrued income, pending settlements, and investor transactions, and adjusts for operational expenses affecting total fund value.
Process requires systematic tracking of portfolio components, market valuations, investor activities, corporate actions, and regular reconciliation ensuring accurate AUM representation.
Importance Of AUM In Mutual Fund
The main importance of AUM in a mutual fund lies in reflecting its size and investor confidence. A higher AUM indicates strong investor trust, better liquidity, and the fund’s ability to diversify, while also impacting management fees and operational costs.
- Size and Investor Confidence: A higher AUM reflects greater investor trust, suggesting the fund is reliable and popular, attracting more investments over time.
- Liquidity: Larger AUM provides better liquidity, enabling smoother buying and selling of assets without significantly impacting the market price.
- Diversification: With more assets, funds can diversify across different sectors, reducing risk and improving returns, ensuring stability during market fluctuations.
- Management Fees: Larger AUM often results in lower management fees for investors, as fixed costs are spread across a greater amount of assets.
- Operational Costs: Larger funds can benefit from economies of scale, reducing per-unit operational costs while ensuring more efficient management of the portfolio.
Asset Under Management Features
The main features of AUM in mutual funds include its reflection of the total value of investments managed, an indicator of fund size, liquidity, and investor confidence. A higher AUM often leads to better diversification, lower management fees, and economies of scale.
- Fund Size Reflection: AUM indicates the total value of assets managed by the mutual fund, helping to assess the fund’s scale and its ability to handle large investments.
- Investor Confidence: A higher AUM signifies strong investor trust and interest, suggesting that the fund is well-managed and has gained credibility in the market.
- Liquidity: AUM provides an understanding of the liquidity available within the fund, which can help investors evaluate the ease of buying or selling units in the fund.
- Diversification: Larger AUM allows the fund manager to invest in a wider range of assets, improving diversification, and reducing individual investment risks.
- Economies of Scale: Larger AUM often results in lower expense ratios, as the fund can spread operational costs over a bigger asset base, making the fund more cost-efficient for investors.
Advantages Of AUM In Mutual Fund
The main advantages of AUM in mutual funds include improved investor confidence, economies of scale leading to lower costs, better liquidity, enhanced diversification, and a larger asset pool for making strategic investments, all contributing to the fund’s overall stability and growth potential.
- Increased Investor Confidence: A higher AUM reflects a fund’s popularity, demonstrating trust and stability. It reassures investors about the fund’s credibility, making it more attractive to new investors looking for reliable options.
- Economies of Scale: As AUM grows, the fund can reduce management costs. This results in lower fees for investors, making it more cost-effective compared to smaller funds with higher per-unit costs.
- Better Liquidity: Larger AUM means more assets are available to buy and sell, which improves liquidity. This provides investors with quicker execution of trades and greater flexibility in managing their investments.
- Enhanced Diversification: A larger asset base allows the fund to diversify across a wider range of assets, including various sectors, geographic regions, and asset classes. This reduces risk, providing a more balanced investment portfolio.
- Strategic Investment Potential: With greater AUM, a fund has more purchasing power, enabling it to make large-scale investments. This can lead to better market opportunities, improved returns, and potential for more strategic moves.
Disadvantages Of AUM In Mutual Fund
The main disadvantages of AUM in mutual funds include decreased flexibility, higher management costs, and the potential for diminished returns. Larger AUM can lead to challenges in managing a diversified portfolio and may increase exposure to market volatility, making it harder to outperform smaller funds.
- Decreased Flexibility: As AUM grows, fund managers face difficulties in making nimble decisions, reducing their ability to capitalize on smaller, high-growth opportunities that require quick action or agile strategy changes.
- Higher Management Costs: Larger AUM often leads to increased operational expenses, including administrative costs, research fees, and other expenses that may reduce the overall net returns for investors, even if the fund grows in value.
- Risk of Diminished Returns: Managing a large AUM can become challenging as fund managers may have to take on bigger, less profitable investments to deploy capital efficiently, leading to reduced returns compared to smaller, more focused funds.
- Exposure to Market Volatility: With higher assets, large mutual funds may be more susceptible to market swings, especially when managing diverse portfolios across different sectors. This can amplify the impact of downturns or volatility on the fund’s performance.
How Does Aum Affect Mutual Funds?
AUM significantly influences fund operations, investment strategy, and performance potential. A larger AUM provides economies of scale, better negotiating power, and broader investment opportunities while potentially affecting maneuverability.
Size impacts investment flexibility, stock selection ability, transaction costs, expense ratios, liquidity management, and overall fund efficiency through scale-based operational advantages and limitations.
Higher AUM enables cost distribution across a larger base, professional management resources, and sophisticated research capabilities, but may limit nimbleness in portfolio changes and affect performance in certain market conditions.
Differences between AUM and NAV
The main difference between AUM (Asset Under Management) and NAV (Net Asset Value) is that AUM refers to the total value of assets managed by a mutual fund, while NAV represents the per-unit value of a fund’s assets, calculated by dividing total assets by outstanding units.
| Criteria | AUM (Assets Under Management) | NAV (Net Asset Value) |
| Definition | Total value of assets managed by a mutual fund. | Per-unit value of a mutual fund’s assets. |
| Calculation | Sum of the total value of all investments in the fund. | Total assets minus liabilities, divided by outstanding units. |
| Measurement | Measures the size or scale of a fund. | Measures the value of one unit of the fund. |
| Impact on Performance | AUM reflects growth, fund’s popularity, and investor trust. | NAV indicates the fund’s current market value per unit. |
| Usage | Used to gauge fund size, management success, and scale. | Used to determine the value of an investor’s holdings. |
| Variation | AUM changes with inflows and outflows of investor money. | NAV fluctuates daily based on market changes and asset valuation. |
| Investor Focus | Higher AUM can suggest better management and stability. | NAV is important to understand the value of one share/unit. |
Top Asset Management Companies
The below table shows the Top Asset Management Companies
| AMC | Assets Managed |
| SBI Mutual Fund | ₹ 919,519.99 crore |
| ICICI Prudential Mutual Fund | ₹ 716,867.52 crores |
| HDFC Mutual Fund | ₹ 614,665.43 crores |
| Nippon India Mutual Fund | ₹ 438,276.85 crores |
| Kotak Mahindra Mutual Fund | ₹ 381,239.57 crores |
| Aditya Birla Sun Life Mutual Fund | ₹ 315,777.58 crores |
| UTI Mutual Fund | ₹ 286,593.27 crores |
| Axis Mutual Fund | ₹ 266,826.23 crores |
| Mirae Asset Mutual Fund | ₹ 1,73,787 crores |
| DSP Mutual Fund | ₹ 138,986.33 crores |
Do you want to expand your knowledge about mutual funds? We’ve got a list of must-read blogs that will help you do just that. Just click on the articles to find out more.
AUM Full Form In Mutual Fund – Quick Summary
- AUM represents the total market value of all assets managed by a mutual fund, reflecting its size, performance, and investor confidence, including both equity and debt investments.
- A mutual fund’s AUM is the sum of its investments, such as stocks and bonds. For instance, ₹500 crore AUM fluctuates with market performance and investor activities like inflows and withdrawals.
- AUM is calculated by summing the value of all assets in the fund, adjusting for market movements, investor flows, and operational costs, and ensuring an accurate representation of the fund’s total value.
- The main importance of AUM lies in reflecting fund size and investor trust. Higher AUM indicates confidence, better liquidity, and diversification, and can impact management fees and operational efficiency.
- The main features of AUM include indicating fund size, liquidity, and investor confidence. Larger AUM allows for better diversification, lower management fees, and economies of scale, improving fund performance.
- The main advantages of AUM include better liquidity, diversification, economies of scale, and investor confidence. Larger AUM supports strategic investments and fund growth, contributing to overall stability and success.
- The main disadvantages of AUM include reduced flexibility, higher management costs, and potentially diminished returns. A larger AUM may face challenges with portfolio management, diversification, and increased exposure to market volatility.
- AUM significantly affects fund operations and investment strategy. Larger AUM provides economies of scale, negotiating power, and better resources, but it can limit flexibility and performance, especially in volatile markets.
- The main difference between AUM and NAV is that AUM represents the total assets managed by the fund, while NAV is the per-unit value, calculated by dividing total assets by outstanding units.
- Open a free demat account with Alice Blue in 15 minutes today! Invest in Stocks, Mutual Funds, Bonds & IPOs for Free. Also, trade at just ₹ 15/order and save 33.33% brokerage on every order.
AUM In Mutual Fund – FAQs
Assets Under Management (AUM) represent the total market value of investments managed by a mutual fund scheme or fund house. This metric indicates fund size, market acceptance, and investment capacity while measuring overall fund performance.
AUM calculation involves adding the market value of all investments, cash positions, and accrued income while adjusting for inflows, outflows, and market movements. Daily valuation considers all portfolio components and investor transactions.
AUM impacts fund operations, investment strategy, and performance potential. Larger AUM provides economies of scale, better negotiating power, and broader investment opportunities, but may affect flexibility in portfolio management.
Consider a fund managing ₹10,000 crore across various stocks. Daily AUM changes with market movements, new investments, redemptions, and portfolio performance, demonstrating the dynamic nature of fund management.
SBI Mutual Fund maintains the highest AUM in India, managing substantial assets across various schemes through an extensive distribution network and strong institutional presence in the Indian mutual fund industry.
High AUM indicates investor confidence and enables cost efficiency, but may limit investment flexibility. Benefits include lower expense ratios and better research capabilities, while challenges include reduced maneuverability in portfolio management.
AUM represents total fund size, while NAV indicates per-unit value. AUM shows the overall fund management scale, whereas NAV reflects investment performance and helps determine individual investment values.
Take your understanding of mutual funds to the next level! Explore our curated collection of engaging blogs that empower your investment decisions. Click now to embark on this enriching journey!
Disclaimer: The above article is written for educational purposes and the companies’ data mentioned in the article may change with respect to time. The securities quoted are exemplary and are not recommendatory.
Click the link to access the web story now: What is AUM in Mutual Fund?
