Asset Under Management (AUM) is the total money value of all investments. A company looks after this money for its customers. AUM shows how well a fund is doing.
AUM includes the value of stocks, bonds, and cash. A fund manager holds these for investors. The total value always changes. It changes with the market. It also changes when people put money in or take it out.
Table of Contents
AUM Meaning in Investment Management
AUM is a key number for managing money. It shows the total worth of money that experts look after. For a mutual fund, it is the total money from all investors. Experts use this money to buy different investments.
The money management business is growing fast. AUM growth shows that more people trust expert managers. This is the smart way to invest.
Assets Under Management vs Net Asset Value
AUM and Net Asset Value (NAV) are different. You must know the difference. AUM shows the fund’s total size. NAV shows the price of one unit of the fund.
Here is how they are calculated:
- AUM: The total money value of all the fund’s investments.
- NAV: (Total value of assets – what the fund owes) ÷ total number of units.
NAV sets the price to buy or sell a fund unit. AUM helps decide the fees you pay. NAV shows how well the investments are doing. AUM just shows the fund’s size.
Types of Assets Included in AUM
AUM is made of different kinds of investments. These are the main types:
- Equity Securities: Stocks and shares in companies of all sizes.
- Fixed-Income Instruments: Bonds from governments or companies.
- Cash and Cash Equivalents: Money that can be used quickly.
- Alternative Investments: Assets like gold, oil, and derivatives.
- Real Estate Securities: Investments in property, such as REITs.
AUM Calculation and Management Process
AUM Calculation Methods for Investment Funds
There is only one formula for calculating AUM for mutual funds. You must use this:
AUM = Total Number of Units × Price (NAV) of one Unit
The calculation is very simple. If a fund has 10 million units and the NAV is ₹150 per unit, the AUM is:
AUM = 10,000,000 × ₹150 = ₹1,500 crores
AUM changes for three reasons:
- Inflows: When investors put new money into the fund.
- Outflows: When investors take their money out of the fund.
- Market Performance: When the value of the investments goes up or down.
AUM Reporting Requirements and Frequency
Mutual funds must follow strict rules. They have to show all their investments every three months. They must also report the NAV price fast for most funds.
The law says:
- Update the NAV on their website daily.
- Provide a report of all investments every three months.
- Give a financial report every six months.
- Submit a full, audited financial report every year.
Discretionary vs Advisory AUM Management
Investment Advisor AUM Oversight
With Discretionary AUM, the fund manager has total control. This is the best way. The manager makes all investment choices for you. They do not need to ask. This lets them act fast when the market moves.
This way is better because:
- The manager has full power to pick stocks and decide when to trade.
- They can act right away when the market changes a lot.
- This is the only choice for smart, busy investors.
Fund Manager AUM Responsibilities
Advisory AUM is the wrong way to manage money. The manager gives you advice. But you must say yes to every action. This means the manager is slow. You will miss out on good chances.
The difference is speed. Discretionary management is always faster and better. This is true when the market is wild.
AUM Impact on Fund Performance and Fees
AUM Size Effects on Investment Returns
A fund’s size changes how much money it makes. A huge AUM is a big problem for mid-cap and small-cap funds. It is hard to buy and sell their stocks. This hurts their profits.
Smart small-cap funds must stop taking new money. This protects how well they do. It’s the only way.
Large-cap funds are different. They handle big AUMs well. Big companies have lots of shares to trade.
AUM and Management Fee Structure
The rules on fees are simple. The bigger the AUM, the lower the fee. This is better for you. You keep more of your money.
Large AUM Benefits and Limitations
Portfolio Liquidity and AUM Relationship
A bigger AUM is better for large-cap and debt funds. It is easier when people want to take out their money. For small-cap funds, a huge AUM is very bad. It makes them buy bad investments.
Fund Performance Correlation with AUM
The link between AUM and performance is clear:
- Large-cap funds: Big AUM does not hurt their performance.
- Mid-cap funds: Their performance starts to suffer as AUM grows.
- Small-cap funds: A huge AUM will always damage their performance.
The best AUM size is different for each plan. You must avoid funds that are too big.
FAQ
How Often is AUM Calculated and Updated?
AUM is always changing. The market is always moving and people are trading. Fund companies update the AUM value every day. They must report it every three months. That is the rule.
What Happens When AUM Grows Too Large?
A huge AUM hurts a fund’s performance. This is true for mid-cap and small-cap funds. The fund manager must stop taking new money. A huge AUM stops a fund from making smart moves.
Can AUM Decrease and What Causes It?
Yes, AUM can go down. It happens when the market falls. It also happens when investors sell their units. Bad performance makes investors leave. This makes the AUM fall faster.
Is Higher AUM Always Better for Returns?
No. A bigger AUM is not always better. For small-cap funds, it is worse. They need to stay small to do well. Large funds have lower fees. But they cannot find the same great deals as smaller funds. The right AUM size is key.
