Assets Under Management (AUM) in Mutual Funds
Assets Under Management is a key metric used to quantify the total value of all the assets that an asset management company (AMC), or a fund manager manages on behalf of its investors.
Importance of AUM in Mutual Funds
AUM is an important metric for AMCs. It reflects the overall size of the fund that can be considered as a measure for the investors to understand how large the fund is. It is also an important factor while calculating the total expense ratio (TER) charged by mutual funds to its investors.
Impact of High AUM on Mutual Funds
The AUM of a mutual fund is an indication of its size and scale. However, a larger AUM does not necessarily indicate strong past or future performance.
Factors influencing AUM in Mutual Funds
- Inflows in the Mutual Fund: During the NFO, a scheme’s Assets Under Management (AUM) is the total money invested by investors. Post the NFO, investors can purchase additional units of the fund by investing their capital which will also contribute to the growth of the AUM.
- Market Value of the underlying investments:The AUM has a direct correlation with the change in the value of the underlying investments. In response to market movements, since the value of the underlying assets change, the AUM of the mutual scheme will also change (increase or decrease).
- Redemption or Payouts from the Scheme:Besides market fluctuations, AUM can also be affected by investor behavior. When investors redeem their investments or when the scheme pays out dividends, the total assets under management (AUM) may decrease.
How to calculate AUM in Mutual Funds
The calculation of AUM is based on the Net Asset Value and also the total number of units held in the mutual fund. The Scheme NAV and the total number of outstanding units will provide the total AUM held by the mutual fund scheme.AUM = Total Number of Outstanding Units × Net Asset Value (NAV) per Unit
How should you consider AUM when picking a mutual fund
Before picking a mutual fund scheme, AUM must be considered in context with the fund's investment strategy, asset class, expense ratio and your financial goals. It is one of the indicators but not the only indicator to look at before choosing a mutual fund scheme. Hence, it cannot be assumed that the fund with the higher AUM will perform well and vice-versa.
Difference between AUM and NAV
NAV is the per-unit value of the fund’s assets. The NAV is calculated by dividing the total value of a fund’s assets less the total value of expenses involved in running the scheme divided by the total number of outstanding units in the scheme. On the other hand, the AUM is calculated based on the scheme NAV per unit and the total number of outstanding units held in the mutual fund. While the AUM represents the fund`s size and scale of operations as a whole, NAV represents the value of every unit in the fund.
Conclusion
AUM refers to the recent/updated cumulative market value of investments managed by the respective mutual fund scheme. A larger/smaller AUM is not necessarily a sign that the fund will outperform/underperform its benchmark. It may only provide a good indication with respect to the size of the fund.
Disclaimer - Please note that this article or document has been prepared on the basis of internal data/ publicly available information and other sources believed to be reliable. The information contained in this article or document is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party in any manner. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article or document.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Published on Feb 19th, 2025
