Investing in mutual funds is a popular way to grow wealth in India. However, before investing in mutual funds, it is important to understand the concept of Asset Under Management (AUM). In this article, we will explain what AUM is, how it is calculated, and why it is important for investors.

What is Asset Under Management (AUM)?

Asset Under Management (AUM) is the total market value of all the assets that a mutual fund manages on behalf of its investors. These assets can include stocks, bonds, cash, and other securities. AUM is an important metric for mutual funds as it reflects the size of the fund and its ability to generate returns for investors.

How is AUM calculated?

AUM is calculated by multiplying the number of units of a mutual fund by its Net Asset Value (NAV). The NAV is the price per unit of a mutual fund and is calculated by dividing the total value of the fund's assets by the number of units outstanding. For example, if a mutual fund has 10,000 units outstanding and its NAV is Rs. 100, its AUM would be Rs. 10 lakhs (10,000 units x Rs. 100 NAV).

Why is AUM important for investors?

AUM is an important metric for investors as it reflects the size of the mutual fund and its ability to generate returns. Generally, larger mutual funds have more resources to invest in a wider range of securities and can benefit from economies of scale. However, larger mutual funds may also face challenges in finding suitable investment opportunities and may have higher expenses.

Investors should also consider the AUM of a mutual fund in relation to its investment objective and strategy. For example, a small-cap mutual fund with a large AUM may find it difficult to invest in small-cap stocks as it may not find enough suitable investment opportunities. On the other hand, a large-cap mutual fund with a small AUM may be able to invest in a wider range of large-cap stocks and benefit from economies of scale.

How does AUM impact mutual fund performance?

AUM can impact mutual fund performance in several ways. Generally, larger mutual funds may have lower returns as they may find it difficult to find suitable investment opportunities and may have higher expenses. On the other hand, smaller mutual funds may have higher returns as they may be able to invest in niche opportunities and may have lower expenses.

However, the impact of AUM on mutual fund performance can vary depending on the investment objective and strategy of the mutual fund. For example, a large-cap mutual fund with a large AUM may be able to invest in a wider range of large-cap stocks and benefit from economies of scale, while a small-cap mutual fund with a small AUM may be able to invest in niche opportunities and generate higher returns.

Examples of AUM in mutual funds in India

Let us take a look at some examples of AUM in mutual funds in India:

• HDFC Top 100 Fund: The HDFC Top 100 Fund is another popular large-cap mutual fund in India. The fund has a diversified portfolio with investments in sectors such as banking, finance, and technology. The fund has a 5-star rating from CRISIL and has delivered an average annual return of 11.88% over the last 5 years. The fund has a low expense ratio of 1.12% which makes it an attractive investment option for investors. This fund is managed by Mr. Rahul Baijal with an asset value of ₹23,821.34 crores.

• Axis Small Cap Fund: Axis Small Cap Fund aims to achieve long-term capital appreciation by primarily investing in small-cap stocks and related equity instruments. It offers an open-ended equity scheme with a diverse portfolio focused on small-cap companies. This fund is managed by Mr. Shreyash Devalkar and Mr. Vinayak Jayanath with an asset value of ₹ 14,251.71 crores under management. The fund has an annualized return value of 37.21 % for 3 years and 22.84 % since inception.

• SBI Magnum Midcap Fund: SBI Magnum Midcap Fund is an open-ended equity scheme focused on mid-cap stocks. It aims to foster long-term capital growth by primarily investing in a diversified portfolio of midcap company equities, comprising at least 65% of its holdings. The fund employs a combination of growth and value investment styles and employs a bottom-up sector-agnostic stock selection approach. This fund is managed by Ms. Sohini Andani with an asset value of ₹ 11829.84 crores under management. The fund has an annualized return value of 35.8 % for 3 years and 16.81 % since inception.

Conclusion

Asset Under Management (AUM) is an important metric for mutual funds as it reflects the size of the fund and its ability to generate returns for investors. Investors should consider the AUM of a mutual fund in relation to its investment objective and strategy. While AUM can impact mutual fund performance, the impact can vary depending on the investment objective and strategy of the mutual fund.