Ever noticed how some mutual funds or investment firms highlight the size of money they manage? That figure is called Assets Under Management (AUM), and it is more than just a big number. For investors, AUM signals the strength of a fund, the level of trust it has earned from people, and its potential to grow further. AUM combines the total value of all assets managed by a fund — stocks, bonds, cash, and more — at any given time. It changes daily with inflows, withdrawals, and market movements. In simple terms, a fund’s AUM can tell you how much investor money it manages and how confidently people trust its strategy.
But does a bigger AUM always mean better returns? Not necessarily. While it shows stability and credibility, the real difference often comes from how skilled the fund manager is in handling those assets. This article will walk you through the meaning of AUM, why it matters, how it’s calculated, and what investors should really look at when analysing funds. Understanding metrics like AUM is the first step to making smarter fund choices and aligning them with your goals. Start your SIP journey from Rs. 100
What is Assets Under Management (AUM)?
Assets Under Management (AUM) is the total market value of all investments managed by a financial entity, fund, or individual on behalf of clients. Think of it as the “total pool of money” that investors have entrusted to the fund.
For example, if you invest Rs. 1 lakh in a mutual fund and thousands of other investors also add their money, the combined value of all those contributions — along with how the investments inside the portfolio are performing — makes up the AUM.
Since markets fluctuate, AUM isn’t static. It increases with fresh investments and rising market values, and decreases with redemptions or falling markets. This makes it a dynamic figure that reflects both investor trust and fund performance at any point in time.
AUM is a core metric in the world of mutual funds, hedge funds, and wealth management because it shows:
- The scale of the fund
- The resources available to the fund manager
- The confidence investors place in that fund
In short, it helps you judge whether a fund is growing, stable, and attracting investors.
Looking beyond the number, investors can use AUM to understand stability before committing their money. Compare top mutual funds instantly
Importance of Assets Under Management (AUM) in mutual funds
Why do experts and investors keep such a close eye on AUM? Because it impacts everything from fund performance to investor confidence. Here’s why it matters:
- Performance tracker: A larger AUM often indicates that a fund is well-established, backed by a strong track record, and trusted by many investors. It reassures new investors that the fund is not only credible but also experienced in managing large amounts.
- Economies of scale: With more assets, fund managers can spread costs across a bigger base, lowering the expense ratio. This can directly benefit investors, as more of their returns stay in their pockets.
- Liquidity and flexibility: A higher AUM allows funds to buy or sell larger investments, diversify more widely, and take advantage of new opportunities without significantly affecting prices.
- Lower redemption pressure: During market downturns, large funds can handle withdrawals more easily without resorting to panic-selling assets.
Calculation of Assets Under Management
So how is AUM actually calculated? In simple terms, it’s the total value of everything a fund owns — from stocks and bonds to cash and money market instruments. It includes both the money invested by individuals and any growth generated by the fund manager’s investment strategies.
Here’s a straightforward example:
Suppose a mutual fund has a Net Asset Value (NAV) of Rs. 20 and there are 20,000 outstanding units.
AUM = NAV × Total number of outstanding units
= Rs. 20 × 20,000
= Rs. 4,00,000
This means the fund is managing Rs. 4,00,000 worth of assets.
Since markets move daily, AUM is not fixed. It can increase when:
- Investors add fresh capital
- Asset values rise in the market
And it can decrease when:
- Investors redeem (withdraw) their money
- Asset values fall
Assets Under Management and Expense Ratio
AUM doesn’t just show how big a fund is — it also affects the costs you pay as an investor. Every fund charges a fee for managing your money, known as the expense ratio. This fee is a percentage of the AUM and covers costs like fund management, administration, and marketing.
Here’s where the link comes in:
- Funds with larger AUM usually maintain lower expense ratios because their costs are spread across a wider base of investors.
- Smaller funds often have higher expense ratios, since expenses are shared by fewer investors.
For example, SEBI regulations state that as funds cross higher AUM slabs, their permissible Total Expense Ratio (TER) decreases. For an equity fund:
- Up to Rs. 500 crores → TER can be 2.25%
- Between Rs. 2,000–5,000 crores → TER reduces to 1.60%
- Above Rs. 10,000 crores → TER reduces further, with limits as low as 1.05%
This means that a big fund doesn’t just reflect trust and scale — it may also help you save on costs in the long run. Considering both AUM and TER together helps investors choose funds that are efficient, affordable, and sustainable over time. Explore funds with strong performance
Impact of AUM and Expense Ratio
When you invest in a mutual fund, you don’t just rely on the fund manager’s skill — you also share in the operational costs. These costs are deducted from your returns through the Total Expense Ratio (TER).
Since TER is a percentage of the fund’s AUM, the size of the fund directly influences how much you end up paying:
- Large AUM funds: More assets mean expenses can be spread across many investors, leading to a lower TER. This often results in better net returns for investors.
- Small AUM funds: With fewer assets, costs are distributed among a smaller group of investors, which usually translates into higher TERs.
SEBI’s rules ensure fairness by mandating lower TERs for bigger funds. This means if you’re investing in a large fund, you are more likely to benefit from reduced costs compared to a smaller fund with similar performance.
Impact of high assets under management on mutual funds
The Indian mutual fund industry has seen rapid growth in AUM, which is a positive sign of investor trust and the sector’s potential. High AUM reflects stability, liquidity, and the ability of fund houses to diversify across markets.
But here’s the key insight: a larger AUM does not guarantee superior returns. While a high AUM indicates credibility and resources, performance still depends heavily on the fund manager’s skill and strategy.
For investors, this means you should balance AUM with other crucial factors like:
- Track record: Has the fund consistently beaten its benchmark?
- Risk profile: Does the fund’s risk align with your own comfort level?
- Investment history: How has it performed across different market cycles?
- Fund manager experience: Does the manager have a proven record of navigating volatility?
A higher AUM can provide comfort, but it should never replace a thorough check of performance and strategy. Evaluating funds beyond just their size helps you find options that match your goals and risk appetite. Reduce taxes by investing in ELSS
Differences between AUM and NAV
Many investors often confuse AUM (Assets Under Management) with NAV (Net Asset Value), but these are two very different concepts.
- AUM represents the total size of the fund. It is the combined market value of all assets a fund manages on behalf of investors. AUM changes with market performance, new inflows, and redemptions.
- NAV, on the other hand, is the per-unit price of the fund. It’s calculated by dividing the fund’s net assets (assets minus liabilities) by the number of outstanding units. NAV changes daily based on the value of the underlying securities.
Here’s a quick example to make it clear:
- If a mutual fund has Rs. 2 lakh crore in assets, its AUM = Rs. 2 lakh crore.
- If the same fund has 10 lakh units outstanding and Rs. 5 crore in net assets, its NAV = Rs. 5 per unit.
Assets under management as a measure of success
In the financial world, the size of AUM is often treated as a key measure of a company or fund’s success. Here’s why:
- Revenue generator: The bigger the AUM, the more fees an AMC can earn through management charges. This provides stability and funds future growth.
- Prestige and recognition: Large AUM figures signal strong investor trust. Institutions with sizeable AUM often earn industry recognition, which further builds confidence.
- Performance payouts: A higher AUM can also impact how fund managers are compensated, motivating them to continue attracting investors and managing portfolios effectively.
However, investors should remember that size alone isn’t everything. While AUM showcases credibility and financial muscle, true success comes from consistent performance and the ability to manage risks wisely.
AUM and Investment Management Strategy
AUM plays a central role in shaping how funds and institutions manage money. The higher the AUM, the more resources a fund manager has to diversify, access new markets, and strengthen research and strategy. For mutual funds, a large AUM usually means access to experienced fund managers, advanced analytical tools, and wider portfolio allocations. This can boost investor confidence, as high AUM is often associated with stability and credibility. That said, a large AUM doesn’t automatically mean better performance. Ultimately, the fund manager’s expertise and how effectively the strategy is executed matter more than just the fund size. Smaller AUM funds can also deliver strong results if managed well with a focused approach.
How to analyse AUM by industry
The meaning and impact of AUM can vary depending on the type of financial institution:
- Hedge funds: AUM fluctuates frequently as it depends on portfolio returns. Since hedge funds are performance-driven, their AUM rises or falls sharply with market movements.
- Mutual funds: AUM is moderately stable and calculated as NAV × outstanding units. It is also influenced by investor inflows, outflows, and dividend payouts.
- Private equity funds: AUM is relatively fixed, based on committed capital raised. Actual market value often becomes clear only at the time of exit, such as through sales or IPOs.
By analysing AUM within the context of the industry, investors can get a clearer picture of how flexible or stable the fund might be in handling investor money.
Key takeaways
- AUM represents the total value of assets managed by a fund or institution.
- It fluctuates daily with market conditions, inflows, outflows, and asset performance.
- A higher AUM usually reflects credibility, stability, and the ability to diversify.
- Bigger funds often enjoy lower expense ratios, benefitting investors.
- But size alone does not guarantee performance — fund manager expertise remains crucial.
Conclusion
Assets Under Management (AUM) is much more than a number on a factsheet. It reflects investor trust, fund size, and the ability of a fund house to manage resources effectively.
The Indian mutual fund industry itself shows how significant this metric is — growing from Rs. 7.66 trillion in August 2013 to Rs. 46.63 trillion in August 2023, a six-fold increase in just a decade.
For investors, however, the key is balance. While a high AUM can be reassuring, it should always be considered alongside other factors like fund performance, risk profile, and the fund manager’s expertise. By doing so, you’ll gain a realistic view of how well a fund can support your financial goals. Using AUM as one of many decision tools helps investors make smarter, more confident choices. Discover consistent high-performing funds So, what are you waiting for, join the mutual fund revolution and start investing in mutual funds through the Bajaj Finserv platform.
