Financial Awareness Level
What is Assets Under Management (AUM) in Mutual Funds?
Assets Under Management (AUM) refers to the total market value of the assets that a mutual fund manages on behalf of its investors. It is a key indicator of a fund’s size, performance, and credibility in the market as on certain date. The AUM fluctuates based on investor inflows, withdrawals, and market performance.
Understanding AUM in Mutual Funds
AUM represents the aggregate value of all investments managed by a mutual fund, including stocks, bonds, and other financial assets. AUM is affected by:
- Market fluctuations
- Net investor inflows (new investments)
- Redemptions or withdrawals
- Dividend reinvestments
Please note that the above points are illustrative in nature and not exhaustive.
Why is AUM Important?
- Indicates Fund Size: A higher AUM suggests investor confidence and fund stability.
- Impacts Expense Ratio: Funds with a larger AUM often have lower expense ratios due to economies of scale.
- Reflects Market Trends: An increasing AUM signifies rising investor participation and positive fund performance.
- Influences Fund Performance: While a higher AUM can indicate reliability, excessive size may make it challenging for fund managers to generate high returns in actively managed funds.
Factors Affecting AUM
- Market Performance: A rising stock market increases AUM, while a downturn decreases it.
- New Investments: Higher investor participation boosts AUM.
- Redemptions: Investor withdrawals reduce AUM.
- Dividend Payments: Some schemes pay dividends, impacting AUM calculations.
Does Higher AUM Mean Better Returns?
Not necessarily. A high AUM suggests stability and investor trust, but it doesn’t guarantee superior performance. Actively managed schemes may struggle to generate high returns if AUM becomes excessively large, limiting the fund manager’s flexibility.
How to Check a Fund’s AUM?
Investors can check a mutual fund scheme’s AUM on:
- The fund house’s official website
- SEBI’s mutual fund database
- Third-party financial websites
AUM is a critical factor in assessing a mutual fund scheme, but investors should also evaluate other aspects like risk, returns, and expense ratios before making investment decisions.
Additional links:
What is a Mutual Fund? - Beginner's Guide to Investing
FAQ Section
Does AUM impact the expense ratio of a mutual fund scheme?
Yes, larger AUMs generally lead to lower expense ratios due to cost efficiency.
Can AUM decrease over time?
Yes, AUM can decline due to market downturns, redemptions, or poor scheme performance.
Should I choose a fund based on AUM alone?
No, consider factors like past performance, fund manager expertise, and expense ratio along with AUM.
Is a higher AUM always better?
Not always. While high AUM indicates stability, excessively large funds may struggle to outperform smaller, more agile funds.
Did you find this article Interesting?
1
2
3
4
5
Recommended For You
Intermediate
What are the Benefits of Investing in Mutual Funds?
5 min read
Intermediate
Risk Management through Mutual Funds
5 min read
Intermediate
The Power of Rupee Cost Averaging in Mutual Funds
5 min read
An Investor Education And Awareness Initiative
Visit https://www.hdfcfund.com/information/key-know-how to know more about the process to complete a one-time Know Your Customer (KYC) requirement to invest in Mutual Funds. Investors should only deal with registered Mutual Funds, details of which can be verified on the SEBI website (www.sebi.gov.in/intermediaries.html). For any queries, complaints & grievance redressal, investors may reach out to the AMCs and / or Investor Relations Officers. Additionally, investors may also lodge complaints directly with the AMCs. If they are not satisfied with the resolutions given by AMCs, they may raise complaint through the SCORES portal on https://scores.sebi.gov.in/scores-home/. SCORES portal facilitates investors to lodge complaint online with SEBI and subsequently view its status. In case the investor is not satisfied with the resolution of the complaints raised directly with the AMCs or through the SCORES portal, they may file any complaint on the Smart ODR on https://smartodr.in/login.
The information is for general purposes only and not an investment advice. Readers should seek professional advice before taking any investment related decisions.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY
