What is an AUM in a Mutual Fund?

The full form of AUM is Assets Under Management. AUM in mutual funds indicates the total market value of all the investments managed by a mutual fund scheme on behalf of its investors. 

Some key characteristics of AUM include:

• Shows the total assets managed: AUM indicates the overall value of assets that a mutual fund scheme manages at a given point in time.
• Measured at the scheme level: Each mutual fund scheme has its own AUM based on the assets held under that particular scheme.
• Changes regularly: AUM can change daily due to movements in the value of the scheme’s investments, fresh investments, and redemptions.

Now that you know the meaning of AUM in mutual funds, let’s try to understand why it is important:

1. Indicates the Size of the Fund

The AUM of a mutual fund scheme gives you an idea about the overall size of the scheme. A higher AUM means the scheme manages a larger asset base, while a lower AUM means it manages a smaller one. 

2. May Affect Investment Flexibility

A very large AUM can sometimes make it harder to invest meaningful amounts in smaller or less-liquid securities. The fund manager may need to focus more on investments that can absorb larger trades.

3. May Affect the Expense Ratio

A larger AUM may help spread certain operating costs across a wider asset base, creating economies of scale. This can potentially support lower costs. However, a high AUM does not guarantee a lower expense ratio. The actual expense ratio depends on the scheme, plan, applicable regulations, and costs charged by the fund.

The AUM of a mutual fund scheme is calculated on the basis of its NAV(Net Asset Value) and total number of outstanding units. The following formula is used for calculation:

AUM Calculation Example

Let’s say the current NAV of a mutual fund scheme stands at Rs. 10 per unit. The scheme has 10,000 outstanding units. In that case, the AUM of the scheme would be:

10 X 10,000 = 1,00,000

As mentioned earlier, the AUM of a mutual fund scheme can change over time. The main reasons include:

• Fresh investments: When investors put new money into an open-ended mutual fund scheme, its AUM may increase.
• Redemptions: When investors redeem their units, and money moves out of the scheme, its AUM may decrease.
• Changes in portfolio value: If the market value of the scheme’s underlying investments rises, its AUM may increase. If their value falls, the AUM may decrease.

When understanding what AUM in mutual funds is, it's also important to understand its relation to expense ratios. The expense ratio is the annual fee charged by MF schemes as a percentage of the AUM. It is the fee charged by the fund to cover the administrative, management, and operational costs of running the fund.

As per SEBI, the expense ratio of a fund is based on its AUM. Now, when a fund has a higher AUM, its expense ratio may be lower. That’s because the management cost of the fund may get distributed among more investors, potentially leading to a lower expense ratio per investor. However, if the AUM is low, the expense ratio may be higher. 

Plus, SEBI has upper limits for expense ratios based on the type of fund and AUM.

Note: As per SEBI’s Master Circular HO/24/13/11(1)2026-IMD-POD-1/I/7602/2026, TER = Base Expense Ratio (BER) + Brokerage Cost + Transaction Cost incurred for the purpose of execution of trade + Statutory levies (including GST).

If you are a beginner, you might find AUM and NAV confusing. Here’s how the two differ:

To conclude, AUM in mutual funds is the total market value of the assets the fund holds. Understanding the importance of AUM in mutual funds can help investors understand the size of the fund, related expense costs, and potential impact on fund performance.

That said, the size of the fund is only a starting point. Investors should also consider factors like the fund manager’s track record, scheme performance, risk suitability, and other parameters before investing. 

1. What is the full form of AUM in mutual funds?

The full form of AUM in mutual funds is Assets Under Management. It is a term used to refer to the market value of all the securities the fund manages on behalf of its investors. 
 

2. What happens if a fund has high AUM?

A high AUM may mean lower administrative costs due to economies of scale. It may also indicate potentially higher investor confidence. However, this can sometimes make buying or selling smaller or less-liquid stocks more difficult, as large trades may affect their market prices.
 

3. Can investors use AUM as a comparison metric when choosing MF schemes?

Investors may use AUM as a comparison metric when selecting funds. They can use this to review the size of the fund, its expenses, and liquidity. 
 

4. Does market volatility impact AUM in mutual funds?

Yes. Market volatility can cause the prices of underlying assets like stocks to fluctuate. When that happens, the AUM of the fund may also experience changes. 
 

5. How can the AUM of a fund rise?

The AUM of a mutual fund scheme may rise when the fund gets more new investors (inflows increase). It may also increase when the value of the underlying assets rises.