What is AUM in Mutual Fund? Meaning & Importance
Do you find yourselves asking, "Does Mutual Funds size matter while investing? The answer is yes; AUM is a widely known term in finance, which stands for asset under management. But, "What is AUM in mutual fund mean for you?"
Well, it tells you the total cumulative investment in a particular fund to begin with.
Let's begin this guide that tells you everything you need to know about AUM meaning, importance and formula to calculate AUM in a simple & interesting way.
Starting with the first heading, which decodes the AUM meaning for you.
What is AUM in Mutual Fund?
The AUM full form in mutual fund stands for Asset Under Management. It is the total cumulative investment amount of a particular investment done in a mutual fund scheme.
In easy words, AUM shows the overall market value that your fund holds (Value of asset + capital). It is managed by the AMCs (Asset management companies) under the supervision of experienced and skilled fund managers who are responsible for managing these assets and making the right investment choice so that you can enjoy wealthy long-term capital.
AUM is also seen as the size parameter of a mutual fund house. Interestingly, a higher AUM means better investment inflow, quality and management experience on behalf of the AMCs.
Importance of Asset Under Management (AUM Full Form)
Here are the following pointers that justify how the AUM meaning in mutual funds is important for every investor:
1. Shows the Size of a Fund
AUM is simply the total value of assets of a fund. The higher the AUM, the stronger the position of a fund in the market will be.
2. Indicates Performance of a Fund
A higher AUM means that the mutual fund scheme is performing well and generating great revenue. This attracts investors in large numbers.
3. Affects Management Fees for Investors
Fund managers or AMCs charge higher fees from investors to manage larger AUM in mutual fund. This may be discouraging for investors.
4. Tells About the AMC
Management of high AUM requires experienced professionals. In addition, when an AMC is managing high AUM, it reflects the trust of investors in that particular mutual fund house (AMC).
How You Can Calculate the AUM in Mutual Fund?
Calculating Asset Under Management is a simple yet very important process. It requires summing up the value of all assets held by a mutual fund scheme. These assets can be stocks, bonds etc. AUM basically showcases the total money that investors have invested in a fund as well as the earnings you make from your SIP or lumpsum investments.
To learn AUM calculation, let’s take an example:
Let’s assume that a particular mutual fund scheme has a NAV (Net Asset Value) of Rs.30 and the total number of outstanding units in that scheme is 35,000.
The AUM formula that every smart investor like you should know is:
AUM = NAV (Net Asset Value) × Total number of outstanding units
= Rs 30 × 35,000
= Rs 10,50,000
Thus, the AUM for that mutual fund scheme is Rs.10,50,000.
Fun Fact: Why wait when the best time to start investing is now?
Now that you have learned about the AUM formula, let’s understand why AUM is important.
Pro Tip: Use the SIP Calculator to do smart calculations in minutes.
What are the Factors that can Affect AUM?
Here are the certain factors that could directly affect asset under management and thus influence a fund’s performance that every investor should know.
1. Capital Inflow Increases AUM
When a fund is launched, the initial AUM in mutual fund represents the total money invested. But after the launch, the fund grows in terms of earnings and investors also purchase more units of that fund. This way, capital inflow increases the fund’s AUM.
2. AUM Grows With the Market
The AUM of a mutual fund grows when the market grows. Market growth means the companies in which the fund has invested are growing. This increases their valuation, which ultimately increases AUM in finance.
3. Withdrawals and Payouts Can Decrease the AUM
If investors decide to redeem their investments or when they get their payouts from the fund, then in such cases the total AUM in mutual fund may decrease.
Must Read: Mutual Funds Vs SIP: Which is Better for You?
What is the Impact of High AUM on Mutual Funds?
Although high Asset Under Management indicates higher revenue but it also becomes challenging for fund managers to manage the AUM. Fund managers have to be more careful while finding the right investment opportunities as their wrong decisions can be a loss for investors.
However since higher AUM in finance means more money to invest, fund managers have higher flexibility to avoid the negative impacts of market conditions. As high AUM has a great potential to earn more profits. Thus, with a substantial AUM, fund managers can swiftly decide to enter or exit from a particular investment and ensure that minimum harm occurs.
So far, you have learned about the AUM full form, how to calculate AUM and its impact on mutual funds. Now it is time to understand the factors that can influence the AUM.
Conclusion
In short, AUM is a key indicator of a mutual fund’s performance as well as an AMC’s ability to manage funds. When you know how to calculate asset under management, it becomes easy for you to assess a mutual fund scheme.
However, AUM is one financial term that you learned in this whole guide. If this made your mind to Start SIP in the top AMCs, you are already half way closer to turning your dreams into reality.
Here are some more related terms that will increase your confidence while investing:
1. Securities Transaction Tax: STT Charges & Calculation Explained
2. What is CAGR Full Form in Mutual Fund & Formula?
3. KYC Full Form & Its Meaning: Why Is It Necessary?
4. STP Full Form Explained: A Simple Guide for Beginners
FAQs
1. What is the full form of AUM?
AUM stands for Asset Under Management. It is the total market value of the assets under a mutual fund scheme. AUM showcases size and performance of a fund.
2. What is the difference between AUM and NAV?
Net Asset Value or NAV represents the per-unit value of assets in a fund. Whereas, AUM full form in mutual fund is Asset Under Management. It refers to the total value of assets under a fund.
3. What is the relationship between AUM and expense ratio?
Expense ratio is basically the percentage of assets of a fund that are used to manage operational costs such as fees of fund management, distribution, etc. AUM and expense ratio are inversely proportional to each other. It means if AUM is high then the expense ratio will be lower, and vice versa.
4. Is a high AUM in a mutual fund good or bad?
Yes, a high AUM means the mutual fund is performing well in the market. It indicates that the fund is generating great returns and is popular with investors.
5. How are AUM fees calculated for investors?
AUM fee is the charge fund managers or AMCs levy on investors to manage their portfolios. The fees are charged on an annual basis and can vary from 0.5% to 2% of the investment amount. For example, if a fund manager is managing your portfolio worth Rs.5 lakhs then a charge between Rs.2,500 to Rs.10,000.
