AUM means Assets Under Management. it is the total value of all the money and investments a mutual fund scheme manages. this includes the combined value of all investor holdings, adjusted for market price changes.
What makes up AUM:
- money contributed by investors
- changes in the value of securities held
- new investments from existing or new investors
- money taken out by investors redeeming their units
AUM changes regularly. it moves with market movements and investor activity. the top mutual fund houses in india have average AUMs running into lakhs of crores. sbi mutual fund leads at over ₹12.5 lakh crore.
Why AUM Matters
AUM matters for a few reasons.
it shows how popular a fund is and how liquid it might be. a higher AUM usually means more investors. this often means better liquidity, making it easier to buy or sell units without affecting performance.
it also affects costs. funds with higher AUM can spread their expenses over a larger asset base. this usually means lower expense ratios for investors. a fund that is part of a top-five fund complex is estimated to have a lower expense ratio by around 0.2%.
it reflects investor participation. a growing AUM may indicate increasing interest from investors. a declining AUM may suggest redemptions or market-related factors.
Does Higher AUM Mean a Better Fund
many investors think a higher AUM means a better fund. that is not always true.
some of the best-performing funds over the last five years have smaller AUMs. dhirendra kumar, ceo of value research, says, “in mutual funds, performance is not linearly linked to size. scale can help in some categories—index funds, large-cap equity, or fixed-income strategies, where trading efficiency and lower costs matter. but in capacity-constrained areas—small caps, micro caps, thematic or narrowly traded segments—getting too large can dilute agility and push a manager toward closet indexing.”
Example from the small-cap space: tata small cap fund has an AUM of ₹11,163.8 crore, among the lowest in its category. it delivered 33.68% 5-year return. nippon india small cap fund has an AUM of ₹66,601.8 crore and posted 37.32%.
Example from the large-cap space: icici pru focused equity fund has an AUM of ₹12,243.5 crore and delivered 25.86% return. it outperformed the icici pru large cap fund, which has a much higher AUM of ₹72,336.1 crore and a return of 23.04%.
AUM and Fund Strategy
in equity and hybrid funds, larger AUM can provide more resources but may limit flexibility in stock selection. hybrid funds are similarly impacted, with AUM fluctuating based on equity-debt balance.
in debt and money-market funds, larger AUM may lower trading costs and improve liquidity. but large funds may face challenges in deploying capital in illiquid markets.
small-cap funds may find it harder to manage larger AUM. large-cap funds benefit from more access to liquid markets. kaustubh belapurkar, director-manager research at morningstar, explains, “fund capacity is an important consideration; it depends on the optimal AUM up to which the strategy can be run similarly without changing its core approach. certain categories will be more prone to capacity issues. for example, small-cap funds can face challenges as the size grows; it becomes harder to find good quality small caps with reasonable liquidity.”
Frequently Asked Questions
1. How is AUM calculated?
AUM is calculated by adding the market value of all assets in the fund plus cash holdings.
2. Does a higher AUM mean better returns?
not always. performance depends on the fund’s strategy, asset allocation, and fund manager decisions. some smaller funds have outperformed larger ones.
3. Can a fund become too large?
yes. in capacity-constrained areas like small-cap funds, a very large AUM can limit flexibility and dilute agility.
4. Where can I check a fund’s AUM?
AUM is available on the fund’s monthly fact sheet, annual report, mutual fund research platforms, and AMFI data.
