What is AUM in Mutual Funds, and Should You Check It Before Investing?

20 May, 2025

Synopsis

• Assets under management (AUM) is the market value of the investments managed by a fund manager or entity on behalf of its clients.

• A higher AUM often indicates trust and stability, but size alone does not guarantee better returns.

• AUM should be checked along with fund category, past performance, liquidity, and expense ratio for a complete picture.

• Even a fund with a low AUM can be good if it has a solid strategy and a skilled fund manager, so don't judge only by size.

Imagine you going for good dining and confused between restaurant selections. One is overloaded with loyal customers, skilled chefs, and glowing reviews, while the other is nearly empty with amenities. Naturally, you will choose the first one. Similarly, in mutual funds, the Asset Under Management (AUM) often acts as a trust signal, but does popularity always equal quality? 

What is AUM in Mutual Fund?

The total market value of assets that investment funds hold on behalf of their investors/clients is called Assets Under Management (AUM). The market value of assets under management fluctuates based on fund investment volume and market performance. People use AUM as a quick indicator of mutual fund size, track record, and trustworthiness.

A high AUM can indicate stability, strong past performance, and investor confidence. Large funds may also enjoy better economies of scale, resulting in lower expense ratios. Investors often feel more secure putting their money in well-established funds that others trust, too.

Should You Consider AUM Before Investing?

Investors should verify AUM as a vital factor but should also consider multiple other elements when making investment decisions. When evaluating investment potential, you should view AUM as a critical contributor among numerous elements that form a complete view. Here's why:

1. Category Matters

The ideal AUM varies depending on the type of fund. A ₹300 crore AUM may be excellent for a small-cap fund but insufficient for a large-cap strategy. Always compare AUM within the same category.

2. Performance > Popularity

A large AUM does not guarantee better returns. Some smaller funds outperform larger ones by being more agile and taking bold, research-backed calls. Conversely, extremely large funds might struggle with flexibility, especially in niche sectors.

3. Liquidity and Fund Stability

The combination of low Assets Under Management along with lack of fund popularity tends to create issues with maintaining liquidity and shows poor capital confidence from investors. The absence of scale in a fund could force its closure or merger processes, thereby resulting in challenges for investors.

4. Expense Ratio Influence

A fund's expense ratio tends to decrease when its assets under management reach high levels, thus providing better long-term benefits to investors. The total asset value of a well-managed large fund lowers expenses, making it more economical for investors than comparable funds that share equivalent returns but higher fees.

5. Assess the Fund Manager's strategy.

You should invest in a fund with a reliable fund manager who adopts clear investment guidelines even when AUM remains low. The absence of due diligence cannot be compensated by AUM.

The evaluation of AUM makes sense when integrated with multiple assessment methods. Holding large amounts of AUM indicates investor trust while offering stability but does not secure investment gains. The fund's strategy, its category fit risk profile, and its management team should be assessed for a clearer understanding beyond its size. The comprehensive examination of all factors determines wise investment choices.

With the HDFC Bank SmartWealth App, compare fund performance and risk levels all at your fingertips. Make informed decisions and invest confidently with expert insights tailored to you.

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