What is AUM in Mutual Fund?

AUM or Assets Under Management is the measure used to determine the size of a mutual fund portfolio. When a financial institution or investment manager manages assets for clients, the total value of those assets is referred to as the assets under management. Investors need to understand AUM. Let's explore in more detail what is AUM in mutual fund means.

AUM meaning in mutual fund states the total market value of all the stocks, bonds, and other securities that a mutual fund manages on behalf of its investors. Mutual funds combine the capital of numerous investors to create a diverse asset portfolio under the direction of qualified fund managers. Market swings cause these assets' values to fluctuate often, which has an impact on the mutual fund's AUM.

How to Calculate AUM in Mutual Fund?

The method used to determine AUM can differ based on the specific fund company. It often increases when investments provide a steady, profitable return over an extended period. 

When an organisation performs well, it draws additional investments and new assets, increasing its total assets. However, each time the market crashes or investors sell their shares, the asset's value drops. 

The market performance of the portfolio assets determines the ongoing fluctuations in the overall value of the assets under management. When the market closes for the day at the end of trading, the net changes in the value of AUM are recorded.

All investors need to know the mutual fund AUM in India to calculate the rate of return on their investment.

Importance of AUM in Mutual Funds

The following are some of the key reasons for the significance of assets under management, its importance will help to understand what is AUM in mutual fund. 

• Reflects a Fund's Size and Scope: A mutual fund's AUM provides a clear picture of its size and scope. Generally, a fund with a higher AUM is more established and can draw in more investors and make bigger investments. Investors searching for a fund with great growth potential and an adequate track record may find this appealing.
• Influences a Fund's Investment Choices: A fund's investment choices may be directly impacted by the size of its AUM. For example, a small-cap fund may have trouble allocating funds as it grows since the companies in its universe are small. It will struggle to gain significant exposure in the businesses it wants to work with. 
• Impacts a Fund's Performance: A mutual fund's AUM may have an impact on its performance. Finding investment opportunities that can produce sizable gains without challenging the market may be more difficult for a fund with a large AUM, making it more difficult for the fund to earn high returns. A smaller fund, on the other hand, would be better able to capitalise on special investment opportunities and produce larger returns.

Impact of High AUM in Mutual Funds

What is AUM in mutual funds can be explained through its impact. Over the last ten years, the AUM of the Indian mutual fund industry has increased by five times, from Rs. 7.60 trillion in 2012 to Rs. 39.89 trillion as of December 31, 2022. This rise indicates that AMCs have a great chance to keep growing their businesses. 

The AUM is not the only metric that investors should use to assess a fund's performance. The performance of a fund is not always indicated by its AUM size. It's crucial to remember that having more assets under management does not always equate to higher returns. The performance of the fund is mostly defined by the portfolio manager's abilities. However, investors need to take into account the fund's history, risk tolerance, managers' experience, and the returns the fund has produced over time in comparison to its benchmark.

Differences Between AUM and NAV

Although both AUM and net asset value (NAV) are used in the investing sector, they have different meanings. This is how AUM vs NAV are compared.
 

Conclusion
AUM for mutual funds is a crucial indicator that offers important information about the size, scope, and performance of a fund. Investors can better go through the specifics of the financial markets and make well-informed decisions by being aware of what is meant by AUM in mutual fund. Your decision to invest in a new mutual fund may be slightly influenced by Assets Under Management, which is a great way to map out a fund's popularity. To invest mutual fund, go ahead with the share market app.