AUM in Mutual Fund: Meaning, Importance & How It Affects Investors

AUM in mutual fund stands for Assets Under Management. It is the total market value of all the investments a mutual fund company manages on behalf of its investors. This includes assets like stocks, bonds, and other securities. 

‘Kitna kama lete ho?’

This is the exact question Mithun’s potential father-in-law asked him. His income defined his capability to take care of someone’s daughter. 

The same thing happens in a mutual fund. When someone asks, ‘Kitna bada fund hai?’, they’re basically asking the same thing: how much money does this fund manage? And that’s exactly what AUM in mutual funds (Assets Under Management) tells us.

For example, 10,000 investors each put ₹50,000 in a mutual fund.
So, 

• AUM = ₹50,000 × 10,000 = ₹50 crore.

Now, the fund buys stocks, bonds, or other assets using this ₹50 crore. The more people invest and the more value the investments gain, the higher the AUM grows.

If the stocks held by the fund rise in value and the fund gains another ₹10 crore from appreciation,

• New AUM = ₹50 crore + ₹10 crore = ₹60 crore.

The bigger the AUM, the more trust and money it has received from investors like you. But does a big AUM always mean better returns? To understand that better, you need to know what AUM really means and learn how it is calculated. Also, is a bigger AUM always a sign of a good mutual fund? Let’s answer it in this blog.

What Does AUM in Mutual Fund Indicate?

AUM (Assets Under Management) is the total money a mutual fund handles on behalf of its investors. But, it is more than just the face value of a mutual fund. By understanding what it indicates, you can evaluate a fund's stability, its trustworthiness, and returns over a period. 

Here’s what AUM will tell you about a mutual fund:

1. More Investors = More Trust

When a mutual fund has a high AUM, it usually means a lot of people have entrusted it with their money. It shows the fund is popular and money keeps flowing in over time.

2. Easy to Buy, Easy to Exit

Big funds are more liquid, meaning they can handle sudden buying or selling without being affected. When markets are deregulated, thousands of people decide to withdraw. In such cases, a large AUM fund can handle it smoothly, without messing up your investment.

3. Bigger Size, Lower Cost

When a fund gets bigger, it spreads its fixed costs (like staff salaries and research expenses) over more money. This helps lower the cost for investors. For example, if one person pays for the whole pizza, it’s costly, but if 4 people share it, each pays less. Same pizza, lower cost per person!

4. Fund Size and Market Exposure

A higher AUM means more money is managed by the fund. This allows it to invest across many sectors, like banking, tech, healthcare, and energy. Such diversification reduces the risk of loss from any one sector performing poorly. 

How Is It Calculated?

‘Chalo thoda mental trauma lete hain… maths karke’

Assets Under Management (AUM) is an indicator of a mutual fund’s size, performance, and fee structure. Its value changes with fund flows, dividends, and market fluctuations. So, let’s see how it is calculated when it is influenced by such unstable factors.

The basic market value method is the simplest approach, and its formula is:

AUM = Σ (Quantity of Asset × Current Market Price)

Example: There is a mutual fund that holds the following assets: 

• 100,000 shares of Stock A at ₹200
   
• 50,000 bonds at ₹1,000
   
• ₹10,00,000 in cash

Since market prices for shares and bonds are different, their AUM is calculated individually, just as shown below: 

• AUM for Stock A = 100,000 × ₹200 = ₹2,00,00,000
• AUM for bonds = 50,000 × ₹1,000 = ₹5,00,00,000
• AUM for Cash = ₹10,00,000

Then we add these individual AUMs to get our final AUM.

AUM = ₹2,00,00,000 + ₹5,00,00,000 + ₹10,00,000

AUM = ₹7,10,00,000 (₹7.1 crore)

What Assets Are Included in AUM?

Different fund houses may include or exclude certain types of assets. Generally, the following are considered:
 

AUM may also vary based on whether assets are discretionary (actively managed) or advisory (only guided). So, view every subpoint before evaluating any mutual fund.

Limitations of Choosing a Fund with a Large AUM

‘Bada Nahi Badhiya Chuniye’

A large AUM often looks impressive, but in reality, too large or too small of anything has drawbacks.

1. With Large AUM, these are the difficulties one can face:

a. Trouble in Small-Cap Stocks

Large AUM funds often struggle to invest in small- or mid-cap stocks, which have lower trading volumes. It often results in delayed decisions and may affect returns.

For example, A fund with ₹20,000 crore AUM wants to invest ₹1,000 crore in a stock that trades just ₹10 crore a day. It would take 100 days to build or exit that position. 

b. Loss of Focus and Originality

A mid-cap fund manages ₹25,000 crore. To stay fully invested, it may grow from a high-conviction portfolio of 25–30 top-quality stocks to holding 60–70 stocks, many of which aren't best-in-class.

Because of it, the fund loses its original edge. It starts behaving more like a broad index than a focused, high-conviction active strategy.

2. But Small AUM Isn’t Always Better. Here is why:

a. Higher Costs

Small AUM funds often charge higher expense ratios, like 2.5%, because they lack scale. That means if you invest ₹1 lakh, you pay ₹2,500 annually. In contrast, a large fund with charges of 1%. So, for the same amount, you give ₹1,000. 

The table below shows the simplified version of what we just explained:
 

The total fee for a large fund is way higher than for a smaller one. But you have to evaluate the net fees you will be paying. 

b. Liquidity Stress

If ₹40 crore (20%) is suddenly withdrawn from a ₹200 crore fund, it may be forced to sell assets quickly, which now affects the NAV. Smaller funds also often lack long-term performance data or proven managers.

AUM vs NAV

‘Same-Same, But Different’

Let’s start by stating that AUM (Assets Under Management) and NAV (Net Asset Value) are both fundamental to mutual funds. However, they serve distinct purposes and inform different aspects of fund evaluation.

1. AUM is the total market value of all assets managed by the fund (stocks, bonds, cash, etc.). It tells about the size, liquidity, economies of scale, and investor trust and activity in the fund. 

The formula is:

AUM = Σ (Quantity of Asset × Current Market Price)

For example, A fund starts with ₹100 crore AUM, ₹10 crore worth of redemptions and ₹5 crore of market gains that day. 

Then:

New AUM = ₹100 - ₹10 + ₹5 = ₹95 crore

By the difference in old and new AUM, we can have  a vague idea of investors’ activity.

2. NAV stands for Net Asset Value. It determines the buying/selling price of each unit and tracks performance over time.

The formula is:

(Total Assets – Total Liabilities) ÷ Units Outstanding

For example, A mutual fund’s total asset value is ₹500 crore (AUM), and it has 5 crore units in circulation.
Then:
NAV = ₹500 crore ÷ 5 crore units = ₹100 per unit

Conclusion

AUM (Assets Under Management) tells about the total assets managed by the fund. The greater the value of AUM is, the more trustworthy it becomes. But bigger isn’t always better. You, as an investor, should balance AUM with factors like fund strategy, costs, and liquidity to make smarter, long-term investment choices.

Frequently Asked Questions

1. What is the difference between NAV and AUM?
NAV is per-unit price reflecting fund performance; AUM is total assets managed, reflecting scale and investor trust. 

2. Is low AUM good or bad?
Low‑AUM funds may be nimble but often have higher expense ratios, liquidity issues, and less experienced management.

3. What happens when AUM increases?
Rising AUM shows investor confidence, improves economies of scale (lower fees), but may reduce agility in niche strategies. 

4. What does 1% AUM mean?
It means the fund charges a fee equal to 1% of total assets managed annually. It is its expense ratio. 

5. What is the full form of CAGR?

The full form of CAGR is Compound Annual Growth Rate, measuring the smoothed annual return of an investment over time.

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