Assets Under Management (AUM) - Meaning and Calculation (2024)

Assets Under Management (AUM) is a metric that tells the size of a mutual fund portfolio. Explore more in the article.

EXPLORE FUNDS

4 mins

29-May-2024

AUM essentially signifies the combined market value of all the assets – stocks, bonds, cash, etc. – held by a fund manager or institution on behalf of their clients. This metric is crucial for investors as it reflects the firm's size, performance in attracting investors, and potential revenue generation. Now, let us understand in deep about asset under management meaning, importance of assets under management, and calculation of assets under management.

What is Assets Under Management (AUM)?

Assets Under Management(AUM) is a financial metric used to quantify the total market value of assets that a mutual fund manages on behalf of its investors at a specific point in time. In simpler terms, it represents the total value of investments made by all the individuals and entities in amutual fund scheme. AUM is a dynamic figure that fluctuates daily as investors deposit or withdraw funds from the scheme, and as the fund's investments appreciate or depreciate in value.

Importance of Assets Under Management (AUM) inmutual funds

AUM is a vital metric for several reasons:

Performance Tracker:Assets Under Management is an important metric for mutual funds as it reflects the size and scale of a fund. A larger AUM generally indicates that a fund is well-established and has the resources to attract more investors and make larger investments. It can be attractive to investors who are looking for a fund with a solid track record and strong growth potential.
Economies of Scale: As AUM grows, mutual funds can achieve economies of scale. Larger AUM allows fund managers to spread expenses over a broader base, reducing the expense ratio, which can ultimately benefit investors.
Liquidity and Flexibility: A higher AUM can provide a mutual fund with greater liquidity and flexibility in managing its portfolio. Fund managers can execute larger trades, diversify holdings, and access more investment opportunities.
Lower Redemption Pressure: Mutual funds with substantialAssets Under Management are often better equipped to handle redemptions without significant portfolio disruption. This can help prevent a fire-sale of assets during market downturns.

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Frequently Asked Questions

What is the difference between AUM and AMC?

AUM (Assets Under Management) is the total value of investments an AMC (Asset Management Company) manages for its clients. Think of AUM as the amount of money, while AMC is the company managing that money.

Is high AUM good or bad?

Generally, a high AUM suggests a successful and experienced AMC. However, do not solely rely on AUM. Consider the fund's performance and fees too.

Which AMC has the highest AUM in India?

SBI Mutual Fund holds the distinction of being the largest Asset Management Company (AMC) in India based on Assets Under Management (AUM). As of March 31, 2023, SBI Mutual Fund manages an impressive AUM of Rs. 7,00,990.72 Crore. This joint venture between the State Bank of India (SBI) and AMUNDI ensures top-tier service and solutions for investors.

Is higher AUM better for index funds?

AUM does not significantly impact index funds like it can actively managed funds. Index funds track a market index, so size matters less.

Is AUM and NAV the same?

No, AUM is the total value of all investments in a fund, while NAV (Net Asset Value) is the price per unit of a particular fund. Imagine AUM as the total pot of money, and NAV as the price of each individual spoon.

How is AUM calculated?

AUM (Assets Under Management) is calculated by adding up the total market value of all the assets a financial institution manages on behalf of its clients. This includes stocks, bonds, real estate, and other investment vehicles. For instance, if a company manages Rs. 100 crore worth of assets for its clients, its AUM would be Rs. 100 crore.

What comes under asset management?

Asset management encompasses a range of financial services aimed at maximising returns on investments while minimising risks. This includes portfolio management, financial planning, investment advisory services, and wealth management. Asset managers analyse market trends, assess risk tolerance, and make strategic investment decisions to achieve clients' financial goals.

What is the AUM size?

The AUM size refers to the total value of assets managed by a financial institution or investment firm. This metric is a key indicator of the firm's scale and success in the industry. A larger AUM size often indicates a greater ability to attract clients, execute investment strategies, and generate revenue through fees.

What is an example of AUM?

An example of AUM would be a mutual fund company managing a diverse portfolio of stocks, bonds, and other securities on behalf of its investors. If the mutual fund has Rs. 500 crore worth of assets invested in various financial instruments, then its AUM would be Rs. 500 crore.

What if AUM is high?

A high AUM indicates that the financial institution manages a significant amount of assets, which can have several implications. It may signify the firm's reputation, expertise, and ability to attract affluent clients. Additionally, a high AUM could lead to increased revenue through management fees, providing resources for further investment in research, technology, and client services.

What is another name for asset management?

Another name for asset management is investment management. Both terms refer to the professional management of various securities and assets to achieve specific investment objectives. Investment managers analyse market trends, assess risk, and construct portfolios tailored to clients' goals, whether it's wealth preservation, capital appreciation, or income generation.

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The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed.

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