AUM stands for “Assets Under Management.” In mutual funds, AUM refers to the total market value of all the assets a mutual fund manages on behalf of its investors. These assets include stocks, bonds, cash, and other securities in the mutual fund’s portfolio.

The AUM is a crucial metric for investors and fund managers because it provides insights into the size and scale of a mutual fund. A larger AUM might indicate that the fund is popular and attracted more investor money, while a smaller AUM could suggest a newer or less popular fund.

AUM is one factor you should consider when evaluating investment options. But, AUM alone doesn’t provide a complete picture of a fund’s performance or suitability for an investor’s needs.  Other factors, such as past performance, expense ratios, investment strategy, and the fund manager’s track record, should also be considered when making investment decisions. 

With Equity Oriented Funds, a smaller AUM may be better. However, it shouldn’t be too small. Anything between Rs 1,000 crore to Rs 10,000 crore is ideal. Besides this, most portfolios will have only 30-40 stocks in a fund/ So they’ll need to pick carefully and if there’s too much AUM then the funds will lie idle.

When it comes to Debt Oriented Funds, a larger AUM might be better. This is because it will help a fund house strike a good deal while lending money for better interest rates, thereby gaining negotiation power.

Also Read: How is income from Mutual Funds taxed in 2024?

How is AUM calculated?

AUM = Market value of all securities held by the fund

For example, if a mutual fund holds stocks worth ₹50 million, bonds worth ₹30 million, and cash worth ₹20 million, its AUM would be ₹100 million.