What is AUM in mutual fund schemes?
AUM full form in mutual fund schemes = Asset Under Management
Mutual funds invest in a diversified basket of securities, such as stocks and bonds, in order to generate returns for investors. AUM refers to the total market value of all the underlying securities in a particular mutual fund scheme. As a result, the AUM is not constant and keeps fluctuating on a daily basis.
How is the mutual fund AUM calculated?
Different fund houses may use slightly different methods to report AUM, but the AUM formula remains the same. The market value of all underlying securities held by the fund at a given point in time becomes the basis for calculating AUM. To this, net flows (inflows minus outflows) are added, accounting for new investments and withdrawals. Any income earned, such as dividends, interest, or capital gains, also contributes to the AUM.
Importance of AUM in mutual funds
The AUM of a mutual fund can significantly impact your investment decisions. Here are some reasons why it is important.
- It indicates the size and popularity of a mutual fund
The AUM indicates a fund’s size. A high AUM suggests that a large number of investors have placed their trust in the fund by investing their money. It points to the fund’s reputation, which is often associated with stability and steady performance.
- It impacts a fund’s liquidity
Funds with large AUMs have better liquidity. This allows fund managers to manage redemption requests efficiently without significantly affecting the fund’s portfolio.
- It facilitates comparisons
AUM serves as a benchmark for comparing different mutual funds within the same category since it gives an idea about a fund’s popularity and size.
- It affects the fund’s fees
Funds with higher AUMs will have lower expense ratios, and vice versa. A low expense ratio means higher take-home returns for you.
AUM and expense ratio – Connection explained
Fund houses charge a fee for managing your funds, known as the expense ratio. This ratio is influenced by several factors, including the fund’s AUM.
The Securities and Exchange Board of India (SEBI) has set limits for expense ratios based on a fund’s AUM.
As of April 1, 2020, AMCs must adhere to the following limits:
Assets Under Management (AUM) | Total expense ratio for equity funds | Total expense ratio for debt funds |
Up to Rs 500 crore | 2.25% | 2.00% |
On the next Rs 250 crore | 2.00% | 1.75% |
On the next Rs 1,250 crore | 1.75% | 1.50% |
On the next Rs 3,000 crore | 1.60% | 1.35% |
On the next Rs 5,000 crore | 1.50% | 1.25% |
On the next Rs. 40,000 crore | The total expense ratio is reduced by 0.05% for every increase of Rs 5,000 crores of daily net assets or part thereof. | The total expense ratio is reduced by 0.05% for every increase of Rs 5,000 crores of daily net assets or part thereof. |
On balance of the assets | 1.05% | 0.80% |
AUM vs NAV – Differences explained
AUM and NAV are two popular abbreviations in the mutual fund world.
AUM refers to the total market value of all the underlying securities in a mutual fund, including cash. It is often used to assess a fund’s size and popularity.
NAV refers to the per-unit market price of a mutual fund scheme. It is calculated by subtracting the fund’s total liabilities from its total assets and dividing the resulting value by the total number of units.
While the AUM is often used to assess a fund’s popularity, the NAV is the price at which investors buy or sell mutual fund units.
Conclusion
Knowing the AUM meaning in mutual fund parlance is important for all investors. Although an AUM is a valuable metric, it should not be the sole deciding factor. Before choosing your mutual fund, you must also assess other factors such as the fund’s historical performance, the fund manager’s reputation, etc.
An investor education initiative by Edelweiss Mutual Fund
All Mutual Fund Investors have to go through a one-time KYC process. Investors should deal only with Registered Mutual Fund (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit - https://www.edelweissmf.com/kyc-norms
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS. READ ALL SCHEME-RELATED DOCUMENTS CAREFULLY
What is AUM in mutual fund schemes?
AUM full form in mutual fund schemes = Asset Under Management
Mutual funds invest in a diversified basket of securities, such as stocks and bonds, in order to generate returns for investors. AUM refers to the total market value of all the underlying securities in a particular mutual fund scheme. As a result, the AUM is not constant and keeps fluctuating on a daily basis.
How is the mutual fund AUM calculated?
Different fund houses may use slightly different methods to report AUM, but the AUM formula remains the same. The market value of all underlying securities held by the fund at a given point in time becomes the basis for calculating AUM. To this, net flows (inflows minus outflows) are added, accounting for new investments and withdrawals. Any income earned, such as dividends, interest, or capital gains, also contributes to the AUM.
Importance of AUM in mutual funds
The AUM of a mutual fund can significantly impact your investment decisions. Here are some reasons why it is important.
- It indicates the size and popularity of a mutual fund
The AUM indicates a fund’s size. A high AUM suggests that a large number of investors have placed their trust in the fund by investing their money. It points to the fund’s reputation, which is often associated with stability and steady performance.
- It impacts a fund’s liquidity
Funds with large AUMs have better liquidity. This allows fund managers to manage redemption requests efficiently without significantly affecting the fund’s portfolio.
- It facilitates comparisons
AUM serves as a benchmark for comparing different mutual funds within the same category since it gives an idea about a fund’s popularity and size.
- It affects the fund’s fees
Funds with higher AUMs will have lower expense ratios, and vice versa. A low expense ratio means higher take-home returns for you.
AUM and expense ratio – Connection explained
Fund houses charge a fee for managing your funds, known as the expense ratio. This ratio is influenced by several factors, including the fund’s AUM.
The Securities and Exchange Board of India (SEBI) has set limits for expense ratios based on a fund’s AUM.
As of April 1, 2020, AMCs must adhere to the following limits:
Assets Under Management (AUM) | Total expense ratio for equity funds | Total expense ratio for debt funds |
Up to Rs 500 crore | 2.25% | 2.00% |
On the next Rs 250 crore | 2.00% | 1.75% |
On the next Rs 1,250 crore | 1.75% | 1.50% |
On the next Rs 3,000 crore | 1.60% | 1.35% |
On the next Rs 5,000 crore | 1.50% | 1.25% |
On the next Rs. 40,000 crore | The total expense ratio is reduced by 0.05% for every increase of Rs 5,000 crores of daily net assets or part thereof. | The total expense ratio is reduced by 0.05% for every increase of Rs 5,000 crores of daily net assets or part thereof. |
On balance of the assets | 1.05% | 0.80% |
AUM vs NAV – Differences explained
AUM and NAV are two popular abbreviations in the mutual fund world.
AUM refers to the total market value of all the underlying securities in a mutual fund, including cash. It is often used to assess a fund’s size and popularity.
NAV refers to the per-unit market price of a mutual fund scheme. It is calculated by subtracting the fund’s total liabilities from its total assets and dividing the resulting value by the total number of units.
While the AUM is often used to assess a fund’s popularity, the NAV is the price at which investors buy or sell mutual fund units.
Conclusion
Knowing the AUM meaning in mutual fund parlance is important for all investors. Although an AUM is a valuable metric, it should not be the sole deciding factor. Before choosing your mutual fund, you must also assess other factors such as the fund’s historical performance, the fund manager’s reputation, etc.
An investor education initiative by Edelweiss Mutual Fund
All Mutual Fund Investors have to go through a one-time KYC process. Investors should deal only with Registered Mutual Fund (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit - https://www.edelweissmf.com/kyc-norms
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS. READ ALL SCHEME-RELATED DOCUMENTS CAREFULLY
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
