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Assets Under Management is a measure of the total value of all the investments a mutual fund manages, giving an idea of the fund’s size.
AUM is the total value of a mutual fund’s investments. (Photo Credits: X)
AUM, or Assets Under Management, is the total value of money that a mutual fund manages. It includes all the money invested by people, plus any profits earned through interest, dividends, or growth in the fund’s investments. For example, if many people invest in a fund and it grows over time, the AUM increases. AUM can go up or down every day depending on how many people invest or withdraw and how the market is performing.
A bigger AUM usually means the fund is popular and trusted by many investors. But it doesn’t always mean better returns. Sometimes, smaller funds can perform better than big ones. So, while AUM is a good way to see the size of a mutual fund, you should also look at other things like how well it has performed in the past, how much it charges (expense ratio) and what kind of investments it holds.
Importance of AUM in Mutual Funds
Understanding AUM is essential because it influences several aspects of a mutual fund.
First, a higher AUM generally suggests investor trust and fund stability. Investors tend to feel more confident putting their money in funds that are already managing a significant amount of assets.
Second, funds with larger AUM often benefit from economies of scale, potentially reducing the expense ratio over time.
Third, a large AUM can offer better diversification, spreading risk across more assets. However, it’s not always a sign of better performance.
In some cases, especially with small-cap or sectoral funds, a very large AUM might make it difficult for fund managers to deploy money effectively without impacting stock prices.
Therefore, AUM should be one of many factors in fund evaluation. It tells you about the fund’s scale and popularity, but not necessarily its future performance. Always pair it with other data when making an investment decision.
How is AUM Calculated?
AUM is calculated by adding the current market value of all securities held in a fund, including cash and cash equivalents, plus any accrued income. If investors add or withdraw money, the AUM adjusts accordingly.
The formula is: AUM = Market Value of Securities + Cash Reserves + Accrued Income – Liabilities.
Fund houses calculate this daily, reflecting changes due to market movements and investor transactions. It is displayed on the fund’s factsheet and websites like AMFI (Association of Mutual Funds in India).
Accurate AUM figures help assess fund size and how actively money is being managed within the scheme.
Impact of High AUM on Mutual Funds
A high AUM usually means more people trust the fund and it can lower costs and spread risk better. But in some cases, like with small-cap funds, too much money can be hard to manage. It may become tough for fund managers to buy or sell stocks without moving prices. This can affect returns and reduce flexibility. So, while a big AUM is often a good sign, it shouldn’t come at the cost of performance.
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al…Read More
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More
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