Assets Under Management (AUM)

Assets Under Management (AUM) is a metric that tells the size of a mutual fund portfolio. Explore more in the article.
4 mins
27 Mar 2024

Ever wondered about the total worth of investments managed by a financial firm? That is where Asset Under Management (AUM) comes in. AUM essentially signifies the combined market value of all the assets – stocks, bonds, cash, etc. – held by a fund manager or institution on behalf of their clients. This metric is crucial for investors as it reflects the firm's size, performance in attracting investors, and potential revenue generation. Now, let us understand in deep about asset under management meaning, importance of assets under management, and calculation of assets under management.

What is Assets Under Management (AUM)?

Assets Under Management (AUM) is a financial metric used to quantify the total market value of assets that a mutual fund manages on behalf of its investors at a specific point in time. In simpler terms, it represents the total value of investments made by all the individuals and entities in a mutual fund scheme. AUM is a dynamic figure that fluctuates daily as investors deposit or withdraw funds from the scheme, and as the fund's investments appreciate or depreciate in value.

Importance of Assets Under Management (AUM) in mutual funds

AUM is a vital metric for several reasons:

  • Performance Tracker: Assets Under Management is an important metric for mutual funds as it reflects the size and scale of a fund. A larger AUM generally indicates that a fund is well-established and has the resources to attract more investors and make larger investments. It can be attractive to investors who are looking for a fund with a solid track record and strong growth potential.

  • Economies of Scale: As AUM grows, mutual funds can achieve economies of scale. Larger AUM allows fund managers to spread expenses over a broader base, reducing the expense ratio, which can ultimately benefit investors.

  • Liquidity and Flexibility: A higher AUM can provide a mutual fund with greater liquidity and flexibility in managing its portfolio. Fund managers can execute larger trades, diversify holdings, and access more investment opportunities.

  • Lower Redemption Pressure: Mutual funds with substantial Assets Under Management are often better equipped to handle redemptions without significant portfolio disruption. This can help prevent a fire-sale of assets during market downturns.

Frequently Asked Questions

What is the difference between AUM and AMC?

AUM (Assets Under Management) is the total value of investments an AMC (Asset Management Company) manages for its clients. Think of AUM as the amount of money, while AMC is the company managing that money.

Is high AUM good or bad?

Generally, a high AUM suggests a successful and experienced AMC. However, do not solely rely on AUM. Consider the fund's performance and fees too.

Which AMC has the highest AUM in India?

SBI Mutual Fund holds the distinction of being the largest Asset Management Company (AMC) in India based on Assets Under Management (AUM). As of March 31, 2023, SBI Mutual Fund manages an impressive AUM of Rs. 7,00,990.72 Crore. This joint venture between the State Bank of India (SBI) and AMUNDI ensures top-tier service and solutions for investors.

Is higher AUM better for index funds?

AUM does not significantly impact index funds like it can actively managed funds. Index funds track a market index, so size matters less.

Is AUM and NAV the same?

No, AUM is the total value of all investments in a fund, while NAV (Net Asset Value) is the price per unit of a particular fund. Imagine AUM as the total pot of money, and NAV as the price of each individual spoon.

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