Assets Under Management

Assets Under Management (AUM) refers to the total market value of all the investments that a financial institution, fund manager, or entity manages on behalf of its clients. AUM serves as a critical metric for evaluating the success and growth potential of a fund.
EXPLORE FUNDS
4 mins
27-November-2024

AUM essentially signifies the combined market value of all the assets – stocks, bonds, cash, etc. – held by a fund manager or institution on behalf of their clients. This metric is crucial for investors as it reflects the firm's size, performance in attracting investors, and potential revenue generation. Now, let us understand in deep about asset under management meaning, importance of assets under management, and calculation of assets under management.

What is Assets Under Management (AUM)?

Assets under Management (AUM) refers to the total market value of all investments managed by a financial institution, entity, or individual on behalf of investors. It reflects the overall size and performance of a fund or portfolio at any given time.

AUM is a crucial financial metric used to assess the total worth of assets managed by mutual fund schemes, hedge funds, or wealth management firms. It includes the capital investors have deposited into the fund and the performance of the investments within the portfolio. As a result, AUM fluctuates daily based on market conditions, inflows or outflows of capital, and the appreciation or depreciation of the assets held.

This dynamic value serves as an indicator of the fund's strength, investment strategy, and the trust investors place in the fund's management. In general, a higher AUM is often associated with greater resources, more diverse investment strategies, and a higher capacity for achieving favorable returns. Understanding AUM helps investors assess the credibility and performance potential of a particular fund or financial institution.

Importance of Assets Under Management (AUM) in mutual funds

AUM is a vital metric for several reasons:

  • Performance Tracker: Assets Under Management is an important metric for mutual funds as it reflects the size and scale of a fund. A larger AUM generally indicates that a fund is well-established and has the resources to attract more investors and make larger investments. It can be attractive to investors who are looking for a fund with a solid track record and strong growth potential.

  • Economies of Scale: As AUM grows, mutual funds can achieve economies of scale. Larger AUM allows fund managers to spread expenses over a broader base, reducing the expense ratio, which can ultimately benefit investors.

  • Liquidity and Flexibility: A higher AUM can provide a mutual fund with greater liquidity and flexibility in managing its portfolio. Fund managers can execute larger trades, diversify holdings, and access more investment opportunities.

  • Lower Redemption Pressure: Mutual funds with substantial Assets Under Management are often better equipped to handle redemptions without significant portfolio disruption. This can help prevent a fire-sale of assets during market downturns.

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Frequently Asked Questions

What is the difference between AUM and AMC?

AUM (Assets Under Management) is the total value of investments an AMC (Asset Management Company) manages for its clients. Think of AUM as the amount of money, while AMC is the company managing that money.

Is high AUM good or bad?

Generally, a high AUM suggests a successful and experienced AMC. However, do not solely rely on AUM. Consider the fund's performance and fees too.

Which AMC has the highest AUM in India?

SBI Mutual Fund holds the distinction of being the largest Asset Management Company (AMC) in India based on Assets Under Management (AUM). As of March 31, 2023, SBI Mutual Fund manages an impressive AUM of Rs. 7,00,990.72 Crore. This joint venture between the State Bank of India (SBI) and AMUNDI ensures top-tier service and solutions for investors.

Is higher AUM better for index funds?

AUM does not significantly impact index funds like it can actively managed funds. Index funds track a market index, so size matters less.

Is AUM and NAV the same?

No, AUM is the total value of all investments in a fund, while NAV (Net Asset Value) is the price per unit of a particular fund. Imagine AUM as the total pot of money, and NAV as the price of each individual spoon.

How is AUM calculated?

AUM (Assets Under Management) is calculated by adding up the total market value of all the assets a financial institution manages on behalf of its clients. This includes stocks, bonds, real estate, and other investment vehicles. For instance, if a company manages Rs. 100 crore worth of assets for its clients, its AUM would be Rs. 100 crore.

What comes under asset management?

Asset management encompasses a range of financial services aimed at maximising returns on investments while minimising risks. This includes portfolio management, financial planning, investment advisory services, and wealth management. Asset managers analyse market trends, assess risk tolerance, and make strategic investment decisions to achieve clients' financial goals.

What is the AUM size?

The AUM size refers to the total value of assets managed by a financial institution or investment firm. This metric is a key indicator of the firm's scale and success in the industry. A larger AUM size often indicates a greater ability to attract clients, execute investment strategies, and generate revenue through fees.

What is an example of AUM?

An example of AUM would be a mutual fund company managing a diverse portfolio of stocks, bonds, and other securities on behalf of its investors. If the mutual fund has Rs. 500 crore worth of assets invested in various financial instruments, then its AUM would be Rs. 500 crore.

What if AUM is high?

A high AUM indicates that the financial institution manages a significant amount of assets, which can have several implications. It may signify the firm's reputation, expertise, and ability to attract affluent clients. Additionally, a high AUM could lead to increased revenue through management fees, providing resources for further investment in research, technology, and client services.

What is another name for asset management?

Another name for asset management is investment management. Both terms refer to the professional management of various securities and assets to achieve specific investment objectives. Investment managers analyse market trends, assess risk, and construct portfolios tailored to clients' goals, whether it's wealth preservation, capital appreciation, or income generation.

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Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.

Disclaimer:

Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319

BFL does NOT:

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(ii) carry customized/personalized suitability assessment:

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In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.

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Disclosure: Bajaj Finance Limited (BFL) is a distributor of Mutual Funds with ARN - 90319 and distributes mutual funds of Bajaj Finserv Asset Management Limited (BFSAMC). BFL receives commission towards distribution of mutual fund products. BFSAMC is a group company of BFL, carrying business on arm’s length basis without any conflict of interest and in accordance with the prevailing law / regulation.