What is AUM in Mutual Funds?

Posted on Tuesday, January 28th, 2025 | By IndusInd Bank

Mutual funds are an ideal way to invest in your chosen instruments (debt/equity/hybrid, etc.) without opting for the securities directly. However, before you invest in mutual funds, it is crucial to understand all the metrics involved. One such metric is AUM, whose full form in mutual funds is Assets Under Management. 

The AUM of a fund is the total value of assets managed under a mutual fund. AUM reflects the size and, to an extent, the success of a mutual fund. Understanding AUM in mutual funds is important to evaluate funds to better align them with your financial goals.  

Understanding Assets Under Management (AUM)

• The full form of AUM in mutual funds is ‘Assets Under Management’. It refers to the total market value of all the assets that a mutual fund manages on behalf of its investors. These assets include investments in stocks, bonds, and other securities, along with any cash holdings within the fund.  

• AUM changes regularly due to:  

1. Market Fluctuations: As the value of the fund’s holdings changes, so does the AUM.

2. Investor Activity: When investors buy into or redeem their shares in the fund, it affects the total AUM.

• The meaning of AUM goes beyond just the size of the fund – it also indicates the trust that the investors place in the fund manager’s expertise. A larger AUM often reflects the confidence of its investors and a sound track record in the mutual fund. On the other hand, a smaller AUM may indicate a newer or niche fund. 

• The AUM of a fund is not to be confused with its NAV (net asset value). The former reflects the total market value of all assets managed under a fund. NAV, on the other hand, is the per-unit price of the mutual fund. 

How to Calculate AUM?

The formulation to calculate the AUM of a mutual may vary between fund houses. However, the basic formulation for AUM calculation can be considered as the sum of all holdings within a fund.  

For example, let’s say a mutual fund manages ₹500 crore worth of stocks and bonds. It also holds ₹50 crores in cash reserves. Hence, its AUM can be considered as:  

AUM = ₹500 crores + ₹50 crores = ₹550 crores  

You can also calculate the AUM by multiplying the NAV (net asset value of each unit) by the total number of units in the fund.  

It is important to note that the AUM in a mutual fund fluctuates daily based on market movements and investor activities. 

Importance of AUM in Mutual Funds

Now that you have understood the meaning and full form of AUM, let’s also look at its importance in a mutual fund:

1. Indicates Fund Performance

By looking at an AUM, you get better insights into the popularity and performance of a mutual fund. If a fund has a higher AUM, it means it has experienced fund managers and solid investment strategies.  

2. Impacts the Expense Ratio and Other Fees

AUM also affects the TER (total expense ratio) of the fund. As a higher amount of units will require a higher operational cost, the expense ratio of such funds may be high, and vice versa. However, SEBI (Securities and Exchange Board of India) has mandated that large funds should have lower TERs, while smaller funds can charge higher TERs. 

3. Acts as a Measure of Investor Trust

AUM reflects the trust that the investors of a mutual fund place in it. Funds with growing AUM mean that the investors are in it for the long haul, which signals stability and reliability.  

4. Influences a Fund’s Performance

The AUM, in a mutual fund, is also responsible for its performance to an extent. Funds with a higher AUM may find it difficult to find the right investment opportunities without affecting the market. On the other hand, funds with smaller AUMs may find things easier, as they can take advantage of market opportunities. 

Also Read: 6 Types of Mutual Funds That Every Investor Must Know

Conclusion

Whether you are a beginner or a seasoned investor, it is crucial to know the meaning and full form of AUM in mutual funds, as well as the role it plays. It can help you make a better fund selection, so you can invest your money the right way and reap better gains in the long run. 

If you are looking to invest in mutual funds with a reliable partner, look no further than IndusInd Bank. With us, you can choose from a wide variety of mutual funds suited to your risk profile and financial goals, with varying AUM values. All it takes is one click to invest a lump sum or start an SIP. So, start investing today! 

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.