What is Assets Under Management (AUM) in Mutual Funds

Assets Under Management (AUM) in mutual funds is the total market value of the investments that a mutual fund manages on behalf of its investors. These investments can include stocks, debt instruments, or other securities that form a part of the mutual fund portfolio. AUM indicates the scale of a fund’s operations. Understanding AUM's meaning can help investors gauge a fund's size, performance, and credibility.

Calculation of assets under management (AUM)

AUM is calculated by summing up the market value of all the assets of a mutual fund. The AUM of a mutual fund is a dynamic number because it depends on the market value of the underlying securities, which fluctuates frequently. Thus, the AUM rises when the investments are performing well. It can also rise when more units are purchased in a scheme. On the contrary, when the market drops or when investors opt to redeem units, the AUM may decrease. Since this value varies from day to day, its net change is usually noted daily after the market closes.

Impact of high AUM on mutual funds

Having a high AUM can be both an advantage and a challenge for mutual funds. A high AUM does not always equate to potentially better returns. A mutual fund’s performance depends on the fund manager's expertise and their ability to make smart investment decisions.

Let’s look at the significance of AUM for different types of mutual funds:

Equity funds: More than AUM, equity fund returns are influenced by the skills of the asset manager and the market movements. Within equity, here’s how the significance of AUM can vary:

Large-cap funds: The performance of these funds depends more on market yields and investment strategy than AUM size. A large AUM can indicate how well-established a mutual fund company is, but actual scheme performance will depend on the fund manager’s decisions, stock selection, and stock performance. The fund manager’s strategic decisions on sector allocation, stock selection, and timing can have a larger impact on returns than the sheer size of the AUM.

Mid-cap and small-cap funds: Here too, fund performance depends on investment strategy, market movements, and stock performance, rather than AUM. Moreover, since small and mid-cap stocks are more volatile, the AUM can fluctuate significantly for such funds.

Debt funds: A larger AUM value can mean reduced individual fixed fund expenses and relatively higher returns as the operating costs are spread over a more extensive asset base.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.