What is Asset Under Management (AUM)?
- AssetPlus
- Jun 23
- 6 min read
If you’ve ever compared mutual funds or researched fund houses, you’ve probably come across the term Asset Under Management (AUM).
In simple terms, AUM is the total market value of assets that an investment firm or mutual fund manages on behalf of its investors. It’s a crucial metric that reflects the size, popularity, and sometimes the stability of a fund. Understanding AUM helps you make smarter decisions about which mutual funds to consider for your financial goals.
Read on to learn what AUM means, why it matters, and how it can help you choose the right mutual funds.
AUM Definition and Significance
The Asset Under Management (AUM) of a fund refers to the total market value of all the investments held by a mutual fund, an exchange-traded fund, or an investment company.
This figure keeps changing depending on investor contributions, redemptions, and market performance of the underlying assets.
AUM in investment includes:
Listed and unlisted company shares.
Fixed income instruments such as government securities, corporate debentures, and other debt.
Cash and cash equivalents, like treasury bills, liquid funds, and short-term deposits.
Alternative assets such as real estate, commodities, REITs, and infrastructure investment trusts.
Asset Under Management (AUM) is a snapshot of AMC's financial position and market situation. It provides a macro view of the size of the investor capital held by a fund manager and can reflect their institutional credibility and trust among investors.
Understanding AUM in Mutual Funds
In the mutual fund industry, AUM in investment showcases a fund’s popularity among investors. High AUM vs low AUM funds indicate that many investors believe in the fund manager's strategy and expect consistent performance.
Let us understand what AUM is and isn’t:
Role of AUM in Financial Planning | What AUM Cannot Depict |
A measure of a fund’s total assets under management | A guarantee of better returns |
An indicator of investor trust and market traction | Proof of superior fund performance |
A sign of scale that can reduce per-unit costs | A direct indicator of fund efficiency |
A tool that enables broader diversification | A measure of risk or portfolio quality |
A reflection of how much money the fund attracts | A one-size-fits-all metric for fund selection |
A sign of fund popularity or maturity | A shortcut for judging a fund’s strategy or consistency |
Two funds can have widely differing AUMs but similar or inversely performing records. Instead of relying solely on AUM before investing, consider other parameters such as returns, volatility, and fund objective correlation.
Why Does AUM Matter to Investors?
Modern investors prudently compare the worth of AUM and then select their investment fund. The AUM of a fund signifies a lot more. This is where AUM in portfolio management comes into play:
1. Liquidity and Trade Impact
Higher AUM funds offer greater liquidity. This means that investors can buy or sell units in large numbers without creating a serious price impact. This stabilizes fund prices and executes smooth transactions in turbulent markets.
2. Economies of Scale through Cost Effectiveness
Increased AUM allows mutual funds to amortize administrative and management fees against a greater number of investors. This leads to a lower expense ratio.
3. Portfolio Stability and Diversification
Large asset-mutual funds diversify more extensively over sectors, asset classes, and geographies. Such diversification reduces risk and minimizes volatility in specific assets.
4. Operational Strength and Fund Resilience
Investor trust, an experienced management team, and access to top research facilities often support large AUM. Such attributes reflect long-term stability and fund resilience.
When a High AUM is Not Desirable
High AUM can be a double-edged sword, especially in certain kinds of funds.
For example, investors use mid-cap or small-cap funds to invest in lower market cap firms. A high AUM can make such investments expensive in such a scenario. Investing large amounts of capital in such funds can compel managers to invest in small firms, potentially distorting stock prices and reducing flexibility.
Moreover, other internal inefficiencies can affect funds with very large AUMs. It can lead to:
Operational complexity can impede decision-making.
Return dilution may occur if fund managers invest new inflows into below-optimal assets.
Thus, a high AUM does not always mean better returns. Investors must consider the consistency of a fund's size with its stated investment philosophy and strategy and whether the fund manager can continue to deliver at scale.
Seek assistance from AssetPlus MFDs to counter such scenarios. The experts empower investors with smart digital tools to make informed choices. Use the AssetPlus Fund Finder tool to discover the best funds and performance dashboards, providing real-time insights into fund performance.
How Is AUM Calculated?
Fund houses compute Asset Under Management (AUM) using the following formula:
AUM = NAV per unit × Total number of units outstanding owned by investors
AUM isn't fixed. It fluctuates due to the following reasons:
Market Movements - When the underlying securities like stocks or bonds rise in value, the fund's NAV increases. This drives AUM upwards and, conversely, during bear markets.
Investor Activity - New investments drive AUM upwards, while redemptions reduce it.
To ensure transparency, fund houses report and publish AUM values on a day-to-day basis. Investors track this value to ensure the well-being of funds, the attitude of investors, and overall market sentiments.
Take advantage of the Asset Plus support to contrast present AUM levels among funds in identical categories. It will help you screen funds based on AUM, expense ratios, and past performance.
How to Use AUM in Selecting Funds
Many investors believe that high AUM means improved performance of a fund. While high AUM in mutual fund management is a good cue, it should never be the sole reason for selecting a mutual fund. Here are some tips:
Start by looking at AUM against the fund category. For example, a ₹5,000 crore AUM in a large-cap fund is fine as it denotes investment in large and liquid companies. However, the same AUM in a small-cap fund can be tricky. Always compare AUM with its peer group to estimate if the fund is undersized or oversized.
Then look beyond AUM:
Look at historical returns and volatility.
Assess fund manager consistency and approach.
Verify risk-adjusted metrics.
Certain newer or niche thematic funds can have lower AUMs but offer high potential through concentrated exposure or emerging sector play.
AssetPlus helps you filter funds by AUM range, return history, risk profile, and exit load—all in one dashboard. This enables you to evaluate fund choices based on your investment goals.
AUM at Fund House Level
Mutual fund AUM helps measure product-level popularity. However, the aggregate AUM of an Asset Management Company gives insight into its credibility and institutional backing. Think of it as measuring not just the model of the car but also the manufacturer's overall track record.
AMCs with large aggregate AUMs usually:
Demonstrate high investor confidence in their overall fund offerings.
Emphasize fund diversification across equity, hybrid, debt, and sectoral funds.
Enjoy good infrastructure, with access to cutting-edge research, compliance, and fund management teams.
Certain smaller-sized Asset Management Companies (AMCs) with smaller Asset Under Management (AUM) may offer specialised or innovative products. Therefore, whereas market credibility and experience are reflected in total AUM, it needs to be coupled with transparency, fund manager qualifications, and expense ratios.
Bonus Tip: AssetPlus offers AMC-level presentation slides that enable you to compare Asset Management Companies (AMCs). This tool is best for MFDs and investors who wish to compare fund house performance and credentials across products. |
Use AUM as a Window, Not the Whole View
Understanding Asset Under Management (AUM) equips investors with essential insights into the size, reputation, and positioning of a mutual fund or a fund house. It allows investors to analyse liquidity, diversification opportunities, and potential cost savings.
However, investors should never use AUM as a stand-alone criterion. The correct approach is to use AUM analysis in conjunction with return values, fund strategy, and risk threshold.
Whether you're conserving for retirement, a home, or prosperity, let data-driven fund selection guide your way.
Utilise AssetPlus digital tools and applications for fund-specific questions, goal-based calculators, and intelligent dashboards. Seek expert advice from MFDs for better-informed and more confident investment decisions. Join AssetPlus Partners today.
FAQs
Is AUM limited to mutual funds?
Not at all. Although AUM is widely used in mutual fund scenarios these days, it is also utilised in portfolio management services, alternative investment funds, and even exchange-traded funds. It is the total investor assets under the aegis of any financial instrument or advice platform.
Does the AUM change when markets are closed?
AUM is generally updated against the end-of-day NAV and does not fluctuate on weekends or holidays. However, fund houses publish AUM as the total asset value recorded at the end of the previous trading day.
How are AUM and NAV different but related to one another?
NAV is the price per unit of a mutual fund. AUM is the sum of NAV and the total number of units held by all investors. Therefore, growth in NAV (resulting from growth in assets) can lead to higher AUM and vice versa.
Can a fund with a low asset under management (AUM) be a good investment?
Absolutely! A low AUM fund can offer strong returns based on the fund’s consistency, risk control, and alignment with your financial goals. Besides AUM, the fund could portray an excellent track record, category average, and portfolio quality.
What does it mean when a mutual fund's AUM falls sharply?
This can happen due to falling market values (bear runs) or wholesale redemptions when investors withdraw from a fund. A sudden decrease in AUM urges you to scrutinise fund performance or general market conditions.