What is AUM in Mutual Funds?

Assets under management (AUM) is defined as the total market price of the investments controlled by someone on behalf of purchasers. Every company has different definitions and formulas for AUM. 

Assets Under Management Meaning 

The Aum form stands for Assets under Management. It refers to the full market price of assets being managed by an advisor or institution, either from one client or several.

 AUM in Mutual Funds

AUM or Assets Under Management is the total value of investments managed by an asset management company (AMCs). AMC wise Quarterly Average Aum mutual funds

In the calculation of Aum, some financial institutions consist of bank deposits, mutual funds, and profit from their calculations. Others limit it to funds under discretionary management, wherever the investor assigns authority to the corporate to trade on their behalf.

Overall, Aum is just one facet employed in evaluating an organization or investment. it's conjointly typically thought of in conjunction with management performance and management expertise. However, investors usually contemplate higher investment inflows and better Aum comparisons as positive indicators of quality and management expertise.

Understanding AUM

  • Assets under management seek advice on what proportion of cash a hedge fund or institution is managing for its customers. Aum is the total of the market price for all the investments managed by a fund or family of funds, a capital firm, a brokerage company, or a private registered as an advisor or portfolio manager.
  • Used to indicate the amount, Aum will be separated in many ways. It will seek advice from the overall amount of assets managed for all clients, or it will seek advice from the overall assets managed for a particular consumer. the aum includes the capital the manager will use to form transactions for one or all purchasers, typically on a discretionary basis.
  • For example, if a person has Rs 50 lakhs invested within a very open-end fund, those funds become a part of the overall AUM pool of funds. The fund manager can purchase and sell shares following the fund's investment objective using all of the invested funds while not getting any further special permissions.

Should you think about AUM before investing?

  • Mutual fund investors usually check out the fund’s AUM and obtain affected if it's on the upper aspect. Folks assume that if such a large amount of investors has already invested within the fund, then it should be an honest one. However, there are several reasons why this range shouldn't be a major issue when selecting a fund.
  • The expense ratio, name of the fund manager, and compliance with the investment mandate are a number of the foremost vital factors to think about. Let’s dissect the importance of Aum concerning completely different fund types

Equity funds

Here, consistency in returns and compliance of the fund house with the investment mandate matters over Aum. By consistency, we tend to mean beating the benchmark throughout the market highs and lows. Hence, an equity fund runs on the plus manager’s ability to come up with smart returns systematically rather than quality or size.

Debt funds

AUM could be a crucial issue to consider if you're attending to invest in debt funds. A debt fund with a lot of capital under it will spread the mounted fund expenses across the number of investors. This will scale back the expense magnitude relation per person and therefore increase the fund returns. a lot of assets under the fund conjointly facilitate the fund company to barter affordable rates with debt issuers.

Small-cap funds

Small-cap funds tend to limit money inflow once an explicit purpose. DSP BlackRock Small Cap Fund could be a wide acknowledged example of this. This typically happens once the assets under the open-end fund grow on the far side a point. If the fund becomes a major shareowner in a very company, it should not be able to trade its shares simply once the market fluctuates. That is why a small-capitalization fund often avoids payment investments and persists with SIPs.

Large-cap funds

Let us dissect how Aum impacts large-capitalization mutual funds through the example. Mirae Asset India Opportunities and HDFC prime two hundred are 2 large-capitalization equity funds. the previous has an Aum of simply Rs.4,738 crore, whereas the latter’s is Rs.14,655 crore. Most investors could opt to invest in HDFC prime two hundred for this reason.

Why Assets Under Management are Calculated?

  • The total price of Aum could be a life of the scale of an institution and a key performance indicator of success, as a bigger aum usually interprets into larger revenue within the sort of management fees. That’s why monetary institutions check out the worth of Aum and compare it to competitors and to their history to assess business trends.
  • Moreover, in some jurisdictions, the worth of aum could confirm whether banks should befit specific laws.
  • The approach of monetary establishments or investors calculateAUM will disagree slightly. Some banks could embrace deposits and money, mutual funds, and their calculations. Different financial institutions contemplate solely the funds below discretionary management, that the establishment will use to trade on behalf of the customers/clients.
  • The way banks or investors calculate assets under management will disagree slightly. Some banks could embrace deposits and money, mutual funds, and their calculations. Different establishments contemplate solely the funds below discretionary management, that the institution will use to trade on behalf of the purchasers
  • When evaluating a particular fund, investors usually check out its Aum since it functions as a sign of the scale of the fund. Typically, investment products with high AUMs have higher market trading volumes creating a lot of liquid, which means investors can purchase and sell the fund with ease.

How is Aum calculated?

  • The fund's Aum is said once monthly. it's the full price of the portfolio that the fund is endowed in on it a specific day. In easy terms, it's the total value of  NAV increased with a complete variety of units. Hence the Aum fluctuates with the dynamic NAV, redemptions, and even further purchases done.

Why is Aum necessary in investing?

  • A fund that features a high Aum indicates a better client base and reflects the high level of trust that a fund house enjoys from its clients. several investors use AUM to know the amount of liquidity. A better Aum acts as a cushion whenever there's an enormous redemption. This principally applies to long and liquid funds that always witness giant redemptions created by institutional investors. With a better Aum, such funds will simply absorb large-scale or shock offloading.

Factors to grasp about Aum before investing in Mutual Funds

Some of the factors that investors should remember about AUMs before finance in mutual funds are:

  • Importance of size of Aum – When viewing the AUM fund, investors should remember that size is relative. Tiny or giant Aum can depend upon what it's being compared against. Rather than considering absolutely the price of assets below the management of a fund, investors will compare the Aum with the fund house’s peers to see the fund’s performance.
  • Is Aum the sole determinant of fund performance – an oversized Aum doesn't indicate bonded positive performance. whereas it ought to be thought of before creating an investment, a fund’s terrorist group should not be the sole decisive issue once it involves an investment call.
  • Alternative performance indicators – Investors should think about Aum together with alternative indicators like the fund’s historical performance as compared to its peers, numerous market cycles, etc. The fund’s expense ratio, the name of the fund manager, ways related to risk management, risk ratios, etc, should even be thought of.
  • A fund house’s Aum doesn't essentially have a right-away impact on its performance. a mix of things determines a fund house’s performance. Hence, investors should think about all the higher than the side of Aum figures.

How is Aum connected to promoting fluctuations?

  • Market fluctuations will impact the terrorist group of mutual funds. this is often primarily owing to the movement in costs that impact the worth of the assets controlled by a fund house.
  • For example, let’s assume that a hundred investors invest Rs. 1,00,000 during a fund that invests in equity stocks and fetches a come of 100 percent. The terrorist group of the fund is Rs. 1,10,000. However, if the fund incurs a loss of 100 percent, then the Aum is Rs. 90,000.
  • However, a well-diversified fund can have a higher probability of withstanding market fluctuations no matter the size of its Aum.

Conclusion

While assessing investment choices, investors should investigate how well a fund will manage its assets. Assets under management will replicate however in style a fund is, however, it mustn't be the sole determinant in an investment call. Alternative factors like the fund manager’s expertise, ways adopted by the fund, etc are equally necessary to be thought of.
 

FAQs
What is the distinction between Aum and NAV?

NAV is the worth at that shares during a fund are often bought and sold. Aum is the total price of assets managed by a fund. Aum is expressed as a complete or net price, whereas NAV is expressed on a per-share basis.

How will Aum affect Mutual fund returns?

The AUM of an equity fund is typically simply wedged by market fluctuations. If the AUM will increase or decreases drastically, it will impact the net asset price of the fund. This, in turn, may impact the fund returns.

Is fund size and AUM the same?

AUM or Assets under Management is that the net market price of the assets managed by a fund house. Fund size could be a term that's typically employed in place of Aum. Thus, each shows the value of assets being managed by a fund house.