By Rahul Vats When you start exploring mutual funds, one term appears almost everywhere—AUM. It’s usually shown as a big number, sometimes in crores, and often gives an impression of how “large” or “popular” a fund is. But what exactly does it mean, and should you rely on it while choosing a fund?
AUM is simple on the surface, but it carries deeper meaning when you understand how it works.
What Is AUM?
AUM stands for Assets Under Management.
It represents the total market value of all the investments managed by a mutual fund scheme at a given time.
In simple words: AUM is the total money invested by all investors in a mutual fund.
How AUM Is Calculated
AUM is not just the total amount investors put in. It keeps changing based on market movements and investor activity.
Basic Calculation:
AUM = Total value of all securities + cash holdings – liabilities
In practical terms, it includes:
- Value of stocks (equity funds)
- Value of bonds (debt funds)
- Cash and cash equivalents
- Accrued income (like interest or dividends)
Since market prices change daily, AUM also changes every day.
Example to Understand AUM
Let’s say:
- 1,000 investors invest ₹10,000 each
- Total investment = ₹1 crore
If the market performs well and fund value grows to ₹1.2 crore → AUM becomes ₹1.2 crore
If investors withdraw money or markets fall → AUM decreases
So AUM is dynamic, not fixed.
Types of AUM
AUM can be looked at in different ways.
1. Scheme-Level AUM
- Total assets of a specific mutual fund scheme
2. Fund House AUM
- Total assets managed by an entire asset management company (AMC)
3. Category AUM
- Total assets in a specific category (like equity, debt, hybrid funds)
What Affects AUM?
AUM changes due to multiple factors:
1. Market Performance
- If stock prices rise → AUM increases
- If market falls → AUM decreases
2. Investor Inflows
- More people investing → AUM grows
3. Redemptions
- Investors withdrawing money → AUM reduces
4. Fund Performance
- Better returns attract more investors
Why AUM Is Important
AUM is more than just a number—it gives useful insights.
1. Indicates Fund Size
Large AUM means more money is being managed.
2. Reflects Investor Trust
Higher AUM often shows that many investors trust the fund.
3. Impacts Expense Ratio
Larger funds may have lower costs due to scale.
4. Shows Liquidity
Higher AUM usually means better ability to handle inflows and outflows.
High AUM vs Low AUM
Both have pros and cons. Bigger is not always better.
High AUM Funds
Advantages:
- Stability and lower volatility
- Better resources and research
- Easier handling of large transactions
Disadvantages:
- Harder to generate very high returns (especially in small-cap funds)
- Less flexibility in investing
Low AUM Funds
Advantages:
- More flexibility
- Potential for higher returns in niche areas
Disadvantages:
- Higher risk
- Less stability
- May face liquidity issues
AUM in Different Types of Funds
Equity Funds
- Large AUM may limit flexibility in small-cap investing
Debt Funds
- Higher AUM is generally positive (more stability)
Index Funds
- Larger AUM improves tracking efficiency
AUM vs NAV – Don’t Confuse
These two are completely different.
AUM
- Total size of the fund
NAV (Net Asset Value)
- Price per unit of the fund
Example:
- AUM = ₹1,000 crore
- NAV = ₹100
👉 NAV tells unit price
👉 AUM tells total fund size
Does Higher AUM Mean Better Returns?
No, and this is a common myth.
- A large fund does not guarantee high returns
- A small fund is not always risky
Performance depends on:
- Fund manager strategy
- Market conditions
- Asset allocation
AUM is just one factor, not the final decision-maker.
Role of AUM in Expense Ratio
Expense ratio is the fee charged by the fund.
- Higher AUM → cost gets distributed → lower expense ratio
- Lower AUM → higher cost per investor
This directly affects your returns.
How Investors Should Use AUM
AUM should be used as a supporting factor, not the main one.
Consider AUM Along With:
- Past performance
- Risk level
- Fund manager track record
- Investment objective
Common Mistakes to Avoid
Choosing Only Based on AUM
Big size doesn’t always mean better performance.
Ignoring Very Low AUM Funds
Some niche funds may perform well despite smaller size.
Not Checking Category Context
AUM should be compared within the same fund category.
AUM Trends – Why They Matter
Tracking AUM trends over time can give insights:
- Rapid increase → growing popularity
- Sudden drop → possible redemptions or poor performance
This helps you understand investor behavior.
Final Thoughts
AUM is a simple concept, but it carries meaningful signals about a mutual fund. It tells you how much money is being managed, how popular the fund is, and how stable it might be.
But it should never be your only deciding factor. A smart investor looks beyond size and focuses on overall performance, strategy, and long-term consistency.
In the end, AUM helps you understand the scale of a fund—but the real question is how well that money is being managed.