AUM (Assets Under Management): AUM in Mutual Fund, Benefits, Calculation, Impact

AUM or assets under management is a popular measure of evaluating a fund or an AMC. AUM can be measured at a fund level or at an AMC level or at an overall industry level. If you are doing a quick system check before investing in mutual funds, you might have come across experts recommending to review the AUM of the scheme.

But, what exactly is the assets under management or AUM?

Let us understand, what exactly is this AUM and how it is calculated? When you invest in a mutual fund, you give your money in the hands of professional fund managers so they can invest on your behalf. This total amount managed by a mutual fund scheme is known as its Asset Under Management (AUM). The AUM can be viewed at the level of a fund, a category of funds, an AMC or at the overall industry level.

AUM or Assets Under Management is the total funds that a mutual fund scheme holds. The fund manager of the scheme is responsible for investing and managing this AUM on behalf of investors. The AUM is impacted by 2 factors.

The first factor impacting is the net flows. Any fund sees purchases and redemptions on a continuous basis, if it is an open ended fund. The excess of purchases over redemptions for any period is the net purchase and directly adds to the AUM. In addition, the capital appreciation also adds to the AUM. For example, if the stock prices of your holdings go up, then AUM goes up. In debt funds, if rates go down then AUM goes up.

How do i understand the AUM of indian mutual fund houses?

The table below captures the assets under management of the large fund houses with AUM in excess of Rs.10,000 crore. This is as of September 2021 and would have changed subsequently. However, this is indicative enough.

AMC Name Sep-21 (AUM in Rs cr) Change over Jun-21 %
SBI Funds Management Private Limited 5,79,318 10.49
ICICI Prudential Asset Management Company Limited 4,61,293 7.47
HDFC Asset Management Company Limited 4,41,843 5.47
Aditya Birla Sun Life AMC Ltd 2,99,382 8.51
Kotak Mahindra Asset Management Co Ltd 2,70,547 9.2
Nippon Life India Asset Management Ltd 2,67,213 10.37
Axis Asset Management Company Limited 2,38,575 14.42
UTI Asset Management Company Ltd 2,08,938 11.61
IDFC Asset Management Company Limited 1,26,571 0.24
DSP Investment Managers Private Limited 1,07,241 3.09
Mirae Asset Investment Managers (India) Private Limited 91,802 17.49
L&T Investment Management Ltd 78,274 3.63
Tata Asset Management Limited 76,962 14.96
Edelweiss Asset Management Limited 69,189 12.95
Franklin Templeton Asst Mgmt.(IND)Pvt Ltd 65,223 5.82
Invesco Asset Management (India) Private Ltd 42,936 10.05
Canara Robeco Asset Management Co. Ltd. 39,312 20.93
Motilal Oswal Asset Management Co. Ltd 33,544 13.99
Sundaram Asset Management Company Ltd 33,322 3.64
LIC Mutual Fund Asset Mgmt. Co Ltd 18,040 2.26
PPFAS Asset Management Pvt. Ltd 15,943 40.56
Baroda Pioneer Asset Management Co. Ltd. 11,941 12.35
HSBC Asset Management(India)Private Ltd 11,476 6.11
PGIM India Asset Management Private Limited 11,184 37.91

As can be seen, SBI has the largest AUM in the mutual fund industry followed by ICICI Pru AMC, HDFC AMC, Aditya Birla Sun Life AMC and Kotak AMC in that order.

Should you consider AUM before investing in mutual fund scheme

AUM gives you comfort but does not guarantee returns or outperformance. Generally, the size of the AUM helps determine the success of the scheme and the fund house. Higher the AUM, the more successful is the AMC (Asset Management Company) as more investors trust the AMC with their money. However that is retrospective and not prospective.

Hence, there is no guarantee that a mutual fund scheme with a higher AUM will deliver better returns over a similar scheme from the same fund category. A scheme with a lower AUM might offer better returns than a scheme with a higher AUM due to being more fleetfooted due to its small size and having more flexibility.

Does AUM matter to an equity scheme or to a debt scheme?

Let us look at equity schemes first. Equity funds with lower AUMs have performed better than the ones with higher AUM and this is quite common. Due to this, an investor should never solely rely on selecting a mutual fund scheme based on AUM. They must also consider other factors like the reputation of the fund house, consistency in returns, fund managers' credibility and expense ratio.

Let us now turn to the debt funds. When selecting a debt fund, higher AUM matters because it translates into a more granular distribution of the total expense ratio (TER) across investors. This reduces the expense ratio of the fund and enhances the effective NAV. Moreover, debt funds with significant assets are in a better position to negotiate rates with debt issuers and to that extent large AUM works in favour of debt funds more.

Does aum really matter for your investing decisions in mutual funds?

In such cases, there can be no clear answers. However, some pointers may be of help to you.

  • Generally, a mutual fund with a higher AUM indicates a large client base, meaning higher trust factor and that is a good thing.
  • Secondly, the AUM can be used as a measure of liquidity. A higher AUM can provide a cushion in case there is a substantial redemption and the NAV does not get volatile.
  • In many cases, having a higher AUM also means that the fund has a better ability to absorb shocks in the equity and debt market.
  • Remember that big size of AUM does not automatically guarantee better performance or higher returns. Just because other people in the market trusted a fund house with their money does not mean it is the best for you.
  • AUM is a useful data point provided it is used in conjunction with other indicators like a fund’s historical performance, peer group comparison expense ratio, risk reward, fund house pedigree, quality of the fund management team, risk-management etc.

AUM is a good pointer, but cannot be used in isolation. It surely gives a cushion of trust.

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