Assets under management, or AUM for short, is one of the factors that reflects the overall market value of the mutual fund. Similar to market capitalisation used in stock markets, AUM gives an idea about the returns that can be potentially generated by the investment of a particular fund. If you are investing in mutual funds, this article will help you understand the importance of AUM, how it impacts the performance of mutual fund schemes, and how it may determine your investing decisions.
Equities are less dependent on the size of AUM and highly dependent upon the fund management skills. The returns are mainly based on the expertise of the manager in selecting the stocks irrespective of AUM.
Large AUM debt funds can spread the fixed expenses on a larger base of investors, thereby lowering the cost per investor and increasing yields. It is quite an important variable while judging the efficiency of debt funds.
Small-cap funds are least dependent on AUM unless their size increases significantly, after which they can become major shareholders in a specific company. These funds generally invest more in SIP (Systematic Investment Plan).
Returns generated from large-cap funds depend more on the market yields rather than its AUM size. At various instances, smaller funds that have less AUM have outperformed the bigger funds in terms of revenue generation.
AUM represents the sum total of the market value of all the assets owned by a mutual fund, and thus reflects upon the size and scale of a particular mutual fund. NAV stands for Net Asset Value. This is the per unit value that each mutual fund owns, arrived at by dividing the total market value of assets possessed with the number of outstanding units. As the market moves every day, NAV is changed daily.
The expense ratio is the annual charge that the fund levies in order to meet management and operational expenses and is expressed as a percentage of the AUM. Higher AUMs tend to result in a lower expense ratio per investor due to the fixed costs and a greater asset base, whereas SEBI regulations ensure that the expense ratio cannot be higher than the AUM for a particular fund.
Though AUM is extremely insightful, it is not a determining factor in the performance of the fund. Always look for other factors like the expertise of a fund manager, the investment strategy, and the expense ratio before investing.
If you are looking to invest in mutual fund schemes, the Bajaj Finserv Mutual Fund Platform allows you to choose from over 1,000 options, Additionally, you can also use the platform’s mutual fund calculator to compare mutual funds.
No, the two most important parameters deciding the performance of a mutual fund are the skill of the fund manager and the strategy adopted in investment.
AUM varies every day with the movement of a market, new investments and redemptions by investors.
No, even though AUM is an important parameter, it cannot be the only parameter for selecting a mutual fund because other parameters such as historical performance of the fund, cost of managing the fund, type of investment strategy, and expertise of the fund manager are also important factors.
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