AUM meaning assets under management, which implies the cumulative sum of the market value of total securities held in a mutual fund scheme. In order to make an informed decision, as far as choosing a mutual fund scheme is concerned, investors most know what is AUM in mutual fund. AUM of mutual fund is a crucial indicator when it comes to the performance and size of a certain fund. We will explore the AUM definition in this article.
A mutual fund scheme AUM is directly related to the stock market fluctuations as movement in stock or securities prices impact the value of securities that the scheme is holding in its portfolio. For example – If a scheme has 100 investors and each has invested Rs 10,000 and assuming that the scheme earns a return of 12%, then the scheme AUM would be Rs 10,12,000, but if the scheme makes a loss of 12% then the scheme AUM will shrink to Rs 8,80,000. That is why the AUM of a mutual fund scheme changes every day based on the market movement. This is the AUM meaning in a simplistic manner
We understood the AUM meaning and what is AUM in mutual fund. Now let us understand how the mutual fund AUM is calculated.
The fund manager of a mutual fund scheme invests in a variety of assets and the value of the same is never fixed. It varies based on the subscription that the scheme gets on an on-going basis and the returns the respective assets are able to generate and so on.
In simple terms the AUM definition = NAV of the mutual fund scheme X the total number of outstanding units of the scheme. For example, if the scheme NAV is Rs 20 and the outstanding units 10,000, then the AUM would be Rs 200,000 (Rs 20 x 10,000).
Therefore, the scheme AUM may change daily as the NAV also changes daily after closure of the market. And also because, fresh investments may come in/ or existing investors may redeem from the fund.
Even though the scheme AUM changes daily, the same is declared at the end of every month by the AMC. The respective mutual fund scheme AUMs can be found in the monthly fact sheet of the AMCs or on their website or on online mutual fund research platforms.
Many investors look at scheme AUMs, before selecting schemes to invest. However, investor should note that the scheme AUM cannot be the sole factor driving the decision of choosing funds. The investor must consider other factors like, the track record of the fund manager, scheme expense ratio, risk management strategies, the schemes performance vis-à-vis its benchmark, etc. AUM surely is an important indicator of a fund’s credibility, but not the only indicator. Hence, it cannot be assumed that a fund with higher AUM will perform well and vice versa.
We discussed the AUM meaning and what is AUM in mutual fund. Investors must consult their financial advisors to know more about mutual fund AUM.
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