What is AUM in Mutual Funds
Introduction:
Generally, mutual fund investors come across a term AUM. It shows on screeners, in advertisements, and in most mutual fund statistics India reports. But what AUM actually is, and what does it tell you?
In this article, we will discuss AUM in mutual funds, how it is calculated, what it indicates, and how a financial planner for mutual funds, like Mentor Wealth, can help you put it in context.
What is AUM in Mutual Funds?
Assets Under Management (AUM) is the total market value of all the securities that a mutual fund scheme manages for its investors. AUM includes the value of its holdings, which include equity shares, debt instruments, cash and other permissible assets, at current market prices, plus accrued income minus liabilities. We can say that
AUM = Value of holdings + accrued income – liabilities
Therefore, when AUM increases, it reflects net inflows, which include more investors, bigger ticket sizes and market gains. On the other hand, decreased AUM suggests net redemptions and market declines. However, by itself, it is not a verdict on future performance.
How is Assets Under Management (AUM) Calculated?
Assets Under Management (AUM) is computed at the scheme level and aggregated at the fund house level. Because market prices move daily and investors transact frequently, AUM fluctuates.
The general formula of Assets Under Management (AUM) is:
AUM = Current market value of portfolio holdings + Accrued income/ Receivables − Liabilities
Where:
- Market value of holdings = Equity and debt securities valued under SEBI/AMFI-prescribed norms.
- Accrued income/receivables = Interest accrued but not yet received, dividends declared, etc.
- Liabilities = Management fees payable, expenses accrued, and other obligations.
Reasons Behind Changes in AUM?
There are several reasons which drive changes in Assets Under Management. Some of them include:
- Market movements
- Net flows
- Corporate actions
- Fund expenses
Why Assets Under Management (AUM) is Important?
AUM is a term that is used to refer to the total market value of the securities that a mutual fund company manages on behalf of its clients. Here are some reasons why it important:
Investor Confidence: the increasing AUM signals acceptance and operational stability of the market, increasing investor’s confidence in the market.
Liquidity and Execution: In debt funds, and other large-cap equity funds, high AUM can aid execution and reduce impact costs.
Cost Dynamics: According to Securities and Exchange Board of India (SEBI), the Total Expanse Ratio (TER) often trends lower at higher AUM slabs. This can benefit investors.
Operational Resilience: Several established processes and risk controls are easier to build and maintain at scale.
Why is it not Enough?
Performance isn’t always equal to size: Therefore, past returns and future alpha depend on strategy, and not only size.
Category Constraints: It is interesting to note that in small-cap or micro-cap strategies, very large AUM can make capacity management difficult.
Style Drift Risk: Mutual funds that grow rapidly may adjust their positioning to manage liquidity, thereby changing their risk/return profile.
How AUM Appears Across Categories
Understanding category behavior helps you interpret whether a particular AUM in a mutual fund is large or small relative to peers, not just in absolute terms. Within mutual fund statistics India, there is a significant difference in AUM dynamics by category, such as:
- Equity (Large-cap, Flexi-cap, ELSS, Sector/Thematic): Equity AUM tends to swell in bull markets and cool in corrections. Category funds with broad mandates (e.g., flexi-cap) may accumulate higher AUM than niche sector funds.
- Hybrid (Balanced Advantage, Aggressive Hybrid): AUM often grows when investors prefer asset-allocation in one product with smoother volatility.
- Debt (Liquid, Money Market, Corporate Bond, Gilt): Debt fund AUM often reflects institutional flows and interest-rate cycles. Short-duration and liquid categories can see sizable, fast-moving AUM changes.
- Index & ETFs: Passive investing has gained traction; these often accumulate large AUM where costs are low and tracking is tight.
Where Can You Check AUM Data?
Some of the instruments where you can check AUM data include:
- Scheme factsheets (monthly): Show scheme AUM, portfolio, expense ratio, risk-o-meter, and performance.
- AMC websites: Provide consolidated mutual fund statistics India at the fund house level.
- AMFI (Association of Mutual Funds in India): Industry-wide AUM snapshots, monthly trends, category-wise data.
- Regulatory filings: Disclosures under SEBI norms, including portfolio valuation methodologies.
What Assets Under Management (AUM) Tell You?
- Scale and adoption: AUM Indicates investor trust and the fund’s market acceptance.
- Potential cost efficiency: Larger AUM may correlate with lower TER slabs (check current TER).
- Operational maturity: Often associated with process strength and continuity.
Things to Evaluate Along with AUM while investing in Mutual Funds:
Here are some of the factors that you must evaluate:
- Investment mandate: Is the strategy clear and consistently executed?
- Risk controls: Drawdowns, volatility, credit quality (for debt), liquidity profile.
- Performance quality: Rolling returns, downside capture, category ranking over multiple periods.
- Portfolio fit: Alignment with your goals, horizon, and risk appetite.
- Manager tenure & process: Stability of the team and repeatability of process.
Common Misconceptions About AUM:
While AUM is an important consideration in mutual funds, it does come with its unique challenges and misconceptions. Some of them include:
- Bigger is always better: This is not true. Big can be efficient; small can be agile. Match AUM characteristics to category and strategy.
- High AUM guarantees future returns: Again, high AUM cannot guarantee returns. For assured returns, investors must check the past performance, and other factors, as only the past performance cannot indicate future results.
- Low AUM means high risk: Early-stage or niche strategies may start small. Therefore, it is important to assess risk via portfolio quality, not size alone.
- AUM growth equals skill: AUM can grow due to market rallies or distribution reach; skill shows in risk-adjusted, consistent outcomes.
Highest AUM Mutual Fund in India—Does It Matter?
Search interest in the highest AUM mutual fund in India is common, but long-term investors should avoid chasing size alone. A top-AUM scheme may fit a large-cap passive exposure, while a smaller, well-run active fund could suit a specific goal. Use AUM to understand scale and suitability, not as a shortcut to quality.
How a Financial Planner Puts AUM in Context?
A seasoned financial planner for mutual funds helps you read AUM alongside your personal plan:
- Goal mapping: Ensuring the scheme’s category and AUM characteristics match your horizon and risk tolerance.
- Portfolio construction: Balancing large, liquid strategies with focused exposures where appropriate.
- Cost oversight: Evaluating TER and implementation costs relative to the benefit.
- Ongoing review: Monitoring AUM trends, capacity risks, and category shifts, and rebalancing when needed.
Final Words
Assets Under Management (AUM) in mutual funds serve as a crucial indicator of a fund’s size, popularity, and investor trust. While a high AUM can reflect stability and confidence, it should not be the only factor in choosing a fund. Investors must also assess returns, fund management strategy, expense ratio, and alignment with their financial goals.
For those seeking guidance, having a trusted financial planner for mutual funds can make decision-making easier. At Mentor Wealth, we help investors navigate mutual fund statistics in India, evaluate schemes with the highest AUM mutual fund in India, and choose options that truly fit their long-term objectives. With the right advice and clarity, you can make informed investment decisions that balance growth and security.
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