What Is AUM in Mutual Funds: How Assets Under Management Affects Your Investment

AUM is the total market value of all the money invested in a mutual fund. This includes the value of every stock, bond, cash holding, and other securities that the fund owns on behalf of its investors.
 

When people invest in a mutual fund, their money is pooled together and managed by a professional fund manager. The combined value of these investments is known as the fund's Assets Under Management (AUM).
 

Note that the value of a mutual fund's AUM is not fixed. It changes every day due to fluctuations in the market prices of the underlying investment and regular additions or withdrawals by investors from the fund.

AUM can be calculated using the following formula:

• AUM = Current NAV × Total Number of Outstanding Units
   

For those unaware, Net Asset Value (NAV) is the price of one unit of a mutual fund schemes. It is calculated at the end of each trading day based on the current value of the fund's assets after deducting its liabilities. Whereas, the “total outstanding units” are the number of units currently held by investors.

When you multiply the current NAV of a mutual fund scheme by its total number of outstanding units, you get the AUM of that particular day. For more clarity, let’s study an example. 
 

Example of AUM of Mutual Fund Schemes 

Suppose the NAV of a mutual fund scheme at the end of July 6, 2026, is ₹50 per unit. The total outstanding units are 20 lakhs. Now, the AUM is:

• AUM =₹50 per unit × 20,00,000 units 
• AUM =₹10,00,00,000 or ₹10 crores 

Firstly, realise that AUM only shows the size of a mutual fund scheme. As per general industry understanding, a larger AUM means the fund manages more investor money, while a smaller AUM shows it manages less.

At this time, it is worth mentioning that AUM does not indicate whether the fund delivers better returns or is a better investment opportunity than other funds. However, it may potentially influence some other aspects, such as liquidity offered, the level of diversification, and the expense ratio charged. 
 

Let’s understand in detail:

1. Liquidity

A fund with a larger AUM may have more money invested across different securities. This might make it easier for the fund to meet investor redemption requests. 

However, liquidity also depends on the type of assets the fund holds. For example, a fund that invests in large-cap stocks generally has better liquidity than one that invests in small-cap stocks.
 

2. Diversification

As per general market understanding, funds with a higher AUM may have a comparatively greater ability to diversify and spread investments across a larger number of stocks, bonds, or other securities depending upon the scheme category. 
 

3. Expense Ratio

A mutual fund scheme with a larger AUM may charge a comparatively lower expense ratio. This is because many of the fund's operating expenses (such as administrative costs or fund management fees) are spread across a larger pool of assets. 

As the total assets managed by the fund increase, the cost per investor may fall. This can allow the scheme to offer a lower expense ratio.

AUM could be one factor in your evaluation. However, it should not be analysed in isolation. Realise that a larger AUM does not guarantee higher returns, and a lower AUM does not mean a fund will perform poorly.
 

Therefore, before investing, investors may consider AUM along with the following factors (illustrative list):

• The fund’s investment objective
• Portfolio quality
• Historical performance across market cycles
• Risk level
• Expense ratio, and
• The fund manager's experience
   

Looking at these factors together may give you a more balanced view of the fund.

So, now you know about AUM in mutual funds, how it is calculated, and how it can influence your investments. To revise, AUM represents the total value of assets managed by a mutual fund scheme. It is calculated by multiplying the current NAV by the total outstanding units of the scheme.
 

Note that a fund's AUM does not indicate its performance or return potential, but can influence certain other aspects. Potentially, a larger AUM may:

• Support better liquidity
• Lead to broader diversification
• Allow the fund to charge a lower expense ratio
   

Therefore, AUM is a useful metric to consider, but it may be evaluated alongside other important factors, such as a fund’s historical performance, portfolio quality, risk level, and more.
 

For more information, you can visit www.tatamutualfund.com/deshkarenivesh. The Investor Service Centre of Tata Asset Management Pvt. Ltd. is located at Mulla House, Ground Floor, 51, M.G. Road, Near Flora Fountain, Mumbai – 400 001, Maharashtra. The office hours are Monday to Friday, 9:00 AM to 5:30 PM. For assistance, you can also call (022) 6282 7777 from Monday to Saturday, 9:00 AM to 5:30 PM, or email service@tataamc.com

1. What is the relationship between AUM and fund performance?

As per general market understanding, there is no direct relationship between a mutual fund's AUM and its performance. In most cases, a larger AUM does not guarantee higher returns, and a smaller AUM does not mean weaker performance. 

Note that returns primarily depend on the:

• Fund manager's investment decisions
• Portfolio quality
• Prevailing market conditions, and
• The fund's investment strategy
   

2. Why does the AUM of a mutual fund change every day?

A mutual fund's AUM changes because the value of its underlying investments fluctuates with market conditions. Besides, it also changes when investors purchase new units or redeem their existing units. 

Realise that due to both the above factors, the total assets managed by the fund are recalculated at the end of each trading day.