AUM Explained: Full Form, Meaning & Calculation in Mutual Funds

If you’ve ever researched mutual funds, you might have come across the term AUM meaning Assets Under Management. Simply put, AUM is the total market value of all the assets that a mutual fund scheme manages on behalf of its investors. This includes stocks, bonds, cash and other securities.  
Many investors often ask: ‘Is a higher AUM always better? Does AUM affect fund performance?’ The answer is — while AUM gives you a fair idea about the size and trustworthiness of a fund, it’s not the only factor to look at when investing. 
 
AUM also reflects the fund house’s performance gradient and scale, showing how effectively the Asset Management Company (AMC) manages investor money. Much like market capitalisation in stocks, AUM indicates the fund’s size and credibility. But just like with stocks, bigger isn’t always better — the performance and consistency of returns matter more. 

What is AUM in Mutual Funds? 

AUM, or Assets Under Management, refers to the total value of investments a fund manager or AMC controls on behalf of investors. This includes bonds, equities, and other assets. The number isn’t fixed — it changes daily with inflows and outflows of investor money and market value shifts. 

AUM can grow when more investors put in money or when the portfolio performs well. On the other hand, it decreases when the market dips, returns fall or many investors redeem their units. 

How to Calculate AUM? 

The formula for AUM is simple:  
AUM = (Number of Units or Shares) × (Current Market Price per Unit) 

Here, the Current Market Price is also referred to as NAV (Net Asset Value). Calculating AUM helps you understand how big the fund is and how well it’s attracting investors. 

Why Does AUM Change with Time? 

AUM is not a static figure, it changes every day. Some of the reasons are: 

• Buying and selling of units by investors 

• Changes in the market value of securities 

• Dividends paid or reinvested 

• Daily fluctuation in inflows and outflows of investor money 

If you notice sharp fluctuations in AUM, it usually means the fund is invested in more volatile assets or that investor activity is very high. 

Importance of AUM in Mutual Funds 

Here’s why AUM plays such a key role in mutual fund investing: 

• Shows the total fund size and investor confidence 

• Reflects the AMC’s credibility and trustworthiness 

• Affects the fund’s liquidity – higher AUM means easier redemptions 

• Helps compare schemes within the same category 

• Indicates the fund house’s long-term performance gradient 

Impact of High AUM on Mutual Funds 

While high AUM is generally positive, it comes with both pros and cons: 

• Better stability – Large AUM shows strong investor trust 

• Higher liquidity – Easy entry and exit for investors 

• Lower expense ratio – Costs are spread across more investors 

• Slower decision-making – In equity funds, very large AUM can reduce agility 

• Returns may flatten – Especially if the fund struggles to find enough good opportunities 

AUM and Expense Ratio 

AUM is directly linked to the expense ratio. Larger AUM often results in lower expense ratios since operational costs are distributed across a wider investor base. This means that investors in higher AUM funds generally pay lower fees compared to smaller funds. 

Difference Between AUM & NAV 

• AUM (Assets Under Management): Shows the total value of all assets in the fund. 

• NAV (Net Asset Value): Represents the per-unit price of the fund, calculated daily. 

So while AUM reflects the fund’s overall size, NAV tells you what each unit of that fund is worth. 

Conclusion 

AUM gives you a snapshot of how large and trusted a mutual fund scheme is, but it should not be the only factor in your investment decision. Always compare it with returns, expense ratio, risk exposure, and AMC performance before investing. 

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FAQs on AUM in Mutual Funds 

Does AUM affect NAV? 

No, AUM and NAV are different. AUM shows the total size of the fund, while NAV is the per-unit price. However, both can be influenced by the fund’s performance. 

How to Increase Mutual Fund AUM? 

AUM increases when more investors put in money or when the underlying securities appreciate in value. Reinvesting dividends can also help boost AUM. 

Are there any risks associated with funds having very high AUM? 

 Yes. Very large funds may face challenges in staying agile and finding enough good investment opportunities, especially in equity schemes. 

Is AUM a good indicator of fund stability? 

 Generally yes. Higher AUM shows investor confidence, trust, and liquidity — but you must also check returns and risk profiles.