AUM in Mutual Funds: Meaning, Calculation, Importance and Impact

The Assets Under Management (AUM) in mutual funds surged from ₹6.1 lakh crore in 2010 to ₹65.7 lakh crore by March 2025, registering a compounded annual growth rate (CAGR) of 17.1%. AUM represents the total market value of assets managed by a fund and serves as a key indicator of its size and popularity. Understanding its meaning, calculation, and significance helps investors make informed decisions and assess fund performance.

Key Highlights

• AUM is also known as the fund size of a mutual fund.
• A high AUM does not guarantee high returns.
• AUM in mutual funds fluctuate daily.

What Does AUM Denote in Mutual Funds?

AUM in mutual funds, or Assets Under Management, represents the total market value of a fund, including its assets and invested capital. A larger AUM often reflects strong investor inflows, experienced fund management, and the credibility of the fund house. 

It comprises debt instruments, equities, and other securities in the fund’s portfolio. Since investments and redemptions occur daily, AUM fluctuates regularly, reflecting inflows and outflows from the fund.

Calculation of AUM in Mutual Funds

To calculate the AUM of a mutual fund, you need to add financial assets that the fund manages on behalf of the investors and cash or cash equivalents. In addition, you must deduct the liabilities to determine the AUM.

Here is the simple formula to calculate AUM:

AUM of mutual funds = Total market value of investments in the fund + cash and cash equivalents - liabilities

Importance of AUM in Mutual Funds

1. Indicates Fund Size

AUM indicates the fund size of a mutual fund. It helps understand the fund’s potential to attract more investors and determines the fund’s position in the market.

1. Impacts Mutual Fund Performance

AUM has a significant impact on the performance of mutual funds. A large AUM can result in challenges to get high returns, as finding the right investment opportunities can be difficult given fluctuating market conditions. 

On the other hand, small AUM might get higher returns with flexible investment opportunities. However, based on efficient fund management, a large AUM can provide high returns as well.

1. Affects the Fees of the Mutual Fund

The fees that investors pay to invest in a mutual fund are significantly affected by AUM. For instance, funds with a large AUM might require a large minimum investment amount, restricting access to certain investors.

Impact of High AUM in Mutual Funds

Even though the advantages of a high AUM are more, there are disadvantages of a high AUM as well. Here are the pros and cons of a high AUM:

Pros of High AUM in Mutual Funds

• Builds investors' confidence and trust.
• Establishes the fund’s reputation and market position.
• Funds can negotiate lower expenses to give higher returns.
• Opportunities for broader investment and diversification.

Cons of High AUM in Mutual Funds

• Difficulty in managing funds.
• It might provide lower returns than a smaller fund size.
• Liquidity constraints.

AUM Vs NAV: Key Differences

Why Considering AUM Matters Before Investing in a Mutual Fund?

1. Category Consideration

AUM in mutual funds vary based on the fund type. For instance, a ₹400 crore AUM might be ideal for a small-cap fund. However, it might be insufficient for a large-cap fund. Ensure you compare the AUM of the same category funds.

1. Fund Stability and Liquidity

A low AUM followed by a lack of fund popularity adversely impacts investors' confidence. It might result in fund closure or merger, creating challenges for investors.

1. Performance Vs Popularity

A large AUM does not guarantee higher returns on your mutual fund. While a small AUM might provide high returns, a large AUM might face challenges in terms of flexibility.

1. Fund Manager’s Strategy

Always verify whether your chosen mutual fund is managed by an experienced and reliable fund manager. Even with a lower AUM, a well-managed fund can deliver strong performance and potentially higher returns.

1. Influence of Expense Ratio

The expense ratio of funds with a large AUM tends to be low. This ensures long-term benefits for investors compared to funds with high fees. Ensure you check the expense ratio along with AUM before investing in mutual funds.

AUM in mutual funds can increase significantly if new investors invest in the fund or existing investors add more money to the fund. As the AUM of funds change daily, ensure you check the AUM on the investment day. Notably, the fund performance might vary based on the AUM.

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