What is Assets Under Management (AUM)?

What is AUM in Mutual Funds?

Assets Under Management (AUM) indicates the size and scale of a mutual fund, reflecting the total value of assets it manages. However, AUM should not be interpreted as a fund performance or returns measure. It represents the total market value of all investments managed by a mutual fund, reflecting its overall size and investor participation. AUM is managed directly through fund houses, and Fund managers seek to maximise returns, though results depend on market movements.

Importance of AUM in Mutual Funds

AUM plays a vital role for both mutual funds and investors. It reflects the funds’ stability, operational efficiency, and investor trust while indicating its ability to diversify investments and manage risk.

• Indicates Size and Scale of a Fund: The AUM of a mutual fund is a straightforward indicator of the size and scale of a fund. A larger AUM indicates that a fund can attract more investors and has greater capacity to deploy capital across investments. This may appeal to the investors seeking a fund with a sound track record and good growth prospects.
• Effect on a Fund’s Investment Decisions: The scale of AUM of a fund can directly affect the investment decisions of the fund. An example is a small-cap fund growing into a large one; it might struggle to utilise the funds, as its universe comprises small companies. It may face difficulties gaining significant investment exposure in its target companies.
• Influences on a Fund's Performance: While AUM does not determine performance, large funds may face capacity constraints in certain market segments, making it harder to deploy capital efficiently. Smaller funds can be more nimble, allowing them to take advantage of niche opportunities, though this does not guarantee higher returns.

However, it’s important to remember that Assets Under Management does not guarantee performance. A large fund can underperform if strategy, costs, or asset choices are suboptimal.

Calculation of AUM in Mutual Funds?

So, how is AUM actually calculated? In easy terms, it is the sum of all a fund owns in terms of stocks and bonds, and money in the form of cash and money market securities. AUM includes both fresh investor deposits (inflows) + the appreciation (or depreciation) in value of the existing assets + any reinvested income. Thus, calculated using the following formula:

AUM = Net Asset Value (NAV) × Total Number of Outstanding Units

To compute AUM accurately, the following steps are generally undertaken:

• Identifying Managed Assets: Identify all the financial instruments and investments the entity actively manages, such as stocks, bonds, cash, and other securities.
• Valuation of Assets: Value every asset in the portfolio. This involves valuing securities and other investments according to market prices or recognised industry standards.
• Exclusion of Liabilities: AUM is directly concerned with the total worth of assets under management, without considering the debts and liabilities.

The following is a clear illustration:

For example, if a mutual fund has a NAV of ₹25 and 50,000 units, its AUM would be ₹12.5 lakh.

AUM = NAV × Total number of outstanding units

= 25 × 50,000

= ₹12,50,000

This means the fund is managing ₹12.5 lakh worth of assets.

Since markets fluctuate daily, AUM is not fixed. It can increase when:

• Investors add fresh capital, or
• Asset values rise in the market.

And it can decrease when:

• Investors redeem (withdraw) their money, or
• Asset values fall due to market downturns.

AUM Industry Trends Insights

The Assets Under Management (AUM) of the Indian mutual fund industry stood at ₹75.61 lakh crore (₹75,61,309 crore) as of September 30, 2025, according to the Association of Mutual Funds in India (AMFI). The industry has grown more than six times over the past decade, rising from ₹11.87 trillion in September 2015 to its current level, and tripled in the last five years from ₹26.86 trillion in September 2020. This remarkable growth highlights increasing investor confidence, financial literacy, and the deepening reach of mutual funds across India.

Equity-oriented schemes dominate total AUM, supported by consistent SIP inflows and long-term retail participation. At the same time, fixed-income funds have shown steady growth as investors seek stability during volatile periods. Hybrid and balanced funds are also gaining traction as investors pursue risk-adjusted returns and diversification. Passive investments, including index funds and ETFs, have expanded significantly, reflecting a shift toward low-cost and diversified investing.

Systematic Investment Plans (SIPs) remain a key driver of sustained inflows, ensuring liquidity and stability for the industry. The investor base has grown substantially, with total folios rising from 10 crore in May 2021 to 25.19 crore as of September 2025, of which 19.81 crore belong to equity, hybrid, and solution-oriented schemes. Supportive regulations, improved digital access, and rising market awareness continue to shape investor behaviour positively.

Impact of High AUM on Mutual Funds

The size of a mutual fund’s Assets Under Management (AUM) can meaningfully influence its operations, flexibility, and perception in the market. A higher AUM often reflects investor confidence, professional fund management, and a strong performance record. It also allows fund houses to benefit from economies of scale, improved research access, and reduced per-unit costs. However, an excessively large corpus may restrict agility, especially when investing in niche or less liquid segments where quick decisions and smaller trades are advantageous.

AUM influences different types of funds in distinct ways, as seen below:

• Equity Funds: Their performance is shaped more by the fund manager’s investment decisions and market trends than by AUM size. While a larger AUM can offer better diversification and stability, it does not necessarily result in higher returns.
• Small-Cap Funds: Moderate AUM growth supports liquidity and diversification, but excessively large asset sizes can reduce flexibility. When a small-cap fund becomes too large, it may face difficulty finding enough suitable small-company stocks without impacting their prices or diluting performance.
• Large-Cap Funds: These funds can manage higher AUM levels more efficiently because they primarily invest in large, well-traded companies. Their performance is generally aligned with broader market movements rather than the size of the fund itself.

AUM vs Other Metrics to Consider

To conduct proper due diligence, investors should look at various metrics beyond Assets Under Management.

1. AUM vs Expense Ratio

   As AUM indicates the size of the fund, the expense ratio indicates the cost of operating the fund. Their fundamental differences are described in the table below:

   Metric	AUM	Expense Ratio
   Definition	The cumulative market worth of investments a fund manages, such as stocks, bonds, cash, and other securities.	The annual fee charged by the fund house for managing the fund, expressed as a percentage of its AUM.
   Calculation	Total market value of all assets in the fund’s portfolio.	(Total Annual Fund Expenses ÷ AUM) × 100
   Reflects	The size and scale of the fund.	Investors bear the cost of fund management.
   Changes Over Time	Varies daily with market performance and investor inflows or outflows.	Typically reviewed periodically by the fund house, it tends to decrease as the AUM grows.
   Key Use	Measures the fund’s size, liquidity, and investor confidence.	Indicates the portion of returns deducted as annual management fees.
   Impact on Investors	Because of economies of scale, larger AUMs usually provide greater stability and reduce per-unit costs.	A higher expense ratio reduces net returns; a lower ratio is more cost-efficient for investors.
   Example	If a mutual fund manages assets worth ₹10,000 crore, its AUM is ₹10,000 crore.	If a fund incurs annual expenses of ₹50 crore on an AUM of ₹10,000 crore, the expense ratio is 0.5%.

2. AUM vs NAV

   AUM and Net Asset Value (NAV) are both financial terms used in the investment industry, but represent different things. Here’s a comparison of AUM and NAV:

   Metric	AUM	NAV
   Definition	The aggregate market value of all the assets held in a mutual fund.	The per-unit value of a mutual fund, calculated by subtracting liabilities from total assets and dividing by the number of units.
   Calculation	Total Market Value of Assets in the Portfolio.	(Total Assets – Total Liabilities) ÷ Number of Outstanding Units.
   Reflects	The overall size and popularity of the fund.	The price at which investors buy or sell one unit of the fund.
   Changes Over Time	Fluctuates with market performance and investor transactions (inflows/outflows).	Computed daily based on changes in the market value of the fund’s holdings.
   Key Use	Indicates how large and well-subscribed a fund is among investors.	Determines the daily purchase and redemption price for investors.
   Impact of Flows	Affected by fresh investments (inflows) and withdrawals (outflows).	Indirectly influenced by AUM changes as they impact total asset valuation.
   Example	If a mutual fund holds total assets worth ₹1.2 lakh crore, its AUM is ₹1.2 lakh crore.	If the fund’s net assets (assets – liabilities) are ₹600 crore and there are 30 lakh units, NAV = (₹600 crore ÷ 30 lakh) = ₹2,000 per unit.

Factors Affecting AUM in Mutual Funds

In mutual funds, some critical factors, such as market performance, inflow of investors, fund performance, and fee structures, will affect Assets Under Management.

• Market Performance: AUM changes with the market performance of the securities held by the fund. Gains increase AUM, while losses can reduce it.
• Investor Flows: Net inflows from new investments and outflows through withdrawals directly influence the size of AUM.
• Fund Performance: The fund performance is the actual performance of the fund itself. Fund performance is influenced not only by market trends but also by the active investment decisions made by the fund managers.
• Fee Structure: Fund management and administrative fees are deducted from total assets, which can reduce AUM slightly and influence investor inflows.

Key Strategies to Drive AUM Growth through SIPs

Mutual funds use Systematic Investment Plans (SIPs) to ensure steady, long-term AUM growth. These strategies drive consistent inflows and investor loyalty.

1. Communicating SIP Benefits

   Fund houses highlight SIP advantages such as disciplined investing, rupee cost averaging, and the power of compounding to encourage consistent participation. SIPs help maintain steady fund inflows and investor confidence even during market volatility.

2. Maintaining Consistent Performance

   Steady returns and performance above benchmarks build credibility and keep investors invested. Consistency helps attract new investors and supports long-term AUM stability.

3. Educating and Building Trust

   Investor education on market cycles and the benefits of staying invested reduces redemptions during downturns. Informed investors remain loyal, making AUM more predictable.

4. Using Technology for Reach

   Paperless onboarding, mobile apps, and auto-debit options make SIPs simple and accessible. These tools attract younger, tech-friendly investors and expand participation.

5. Promoting Long-Term Financial Planning

   SIPs are promoted as tools for long-term wealth creation and goal-based investing, such as retirement or education. Long-term commitments help maintain steady inflows and strengthen AUM over time.

Key Takeaways

Assets Under Management (AUM) refers to the total market value of assets held by a mutual fund or financial institution. It fluctuates daily based on market movements, investor inflows and outflows, and asset performance. Generally, a larger AUM indicates credibility, stability, and better diversification, often leading to lower expense ratios through economies of scale. However, a higher AUM doesn’t guarantee superior returns.

The knowledge of the fund manager, portfolio management, and investment strategy is critical to returns. AUM and fund management should be considered by investors when making investment decisions. Once you have evaluated these aspects, you can start SIP in the best Mutual Funds in India.