What is Asset Under Management in Mutual Funds?

The full form of AUM is Assets Under Management and it is very important to comprehend when investing in mutual funds. AUM refers to the all-inclusive asset value of the scheme offered by a financial institution or fund manager. 

Whether you’re a novice or an experienced investor, knowing this facet is important to make a well-informed decision. A higher AUM can help boost your confidence in a scheme, but it isn’t the only factor that matters. 

What is AUM in Mutual Funds?

AUM is also known as a Fund under management if the fund manager can access all the funds to invest on behalf of investors. AUM includes bonds, stocks, and other securities and keeps changing as their value fluctuates per market forces. 

AUM can increase when more investors invest in it and when it offers good returns. It can decrease when the market slumps or returns dip. This may also happen when many investors redeem units. 

AUM in mutual funds is very important as it:

• Shows the total fund size 
• Powers the performance of the fund
• Affects the fee structure of the fund
• Reflects the trustworthiness and reliability of the AMC 
• Impacts investment outlook 

Is a Higher AUM Beneficial?

While a higher AUM may seem like a universally good sign, it actually depends on the mutual fund scheme. A larger AUM can sometimes lead to slower decision-making. For equity schemes, consistent returns matter more than size. However, if you are choosing debt funds, choosing a scheme with a larger AUM can be more beneficial. 

How to Calculate AUM?

While calculating AUM, you are required to calculate the accurate value that the institution holds. The process includes capital appreciation, asset performance and reinvested dividends.

The AUM formula is: (Number of Units or Shares) x (Current Market Price)

The number of units or shares is the total number of shares the fund house has issued and the market price is also known as NAV. Calculating the AUM in mutual funds can help you understand how it is doing and make the right decision as it showcases its popularity. 

Why Does AUM Change With Time?

Its value keeps fluctuating due to the following reasons: 

• Buying and selling of units by investors 
• Changes in the market value of various securities 
• Dividends paid or reinvested

Given these factors, keep in mind that a wildly fluctuating AUM means that the scheme has invested in riskier and more volatile assets. It may also show a high level of inflows and outflows, which may mean it doesn’t have committed investors. However, this may also mean that the securities are liquid. 

Given these facts, consider AUM along with other markers of a scheme, such as its historical performance, expense ratio and risk exposure. Investing in such funds can help you build wealth to achieve both long-term and short-term goals. 

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FAQs on Assets Under Management

What is the full form of AUM?

It stands for assets under management, which includes stocks, government/corporate bonds, cash and more. 

Can AUM fluctuate over time?

From time to time, AUM fluctuates. This is based on factors like market performance, liquidity of the securities and inflow and outflow. 

Are there any risks associated with funds having very high AUM?

Yes, schemes with higher AUMs may not be able to offer high returns. They may also be less agile and may not be able to capitalise on taking advantage of certain opportunities. 

Is AUM a good indicator of fund stability?

Yes, usually a higher AUM indicates that the fund enjoys the confidence of investors and offers good liquidity.