What is Assets Under Management?
The total market value of the investments that an organization manages on behalf of its clients is known as Assets Under Management or AUM. A financial institution’s assets under management include the capital raised from investors and the capital belonging to the principals of the fund management firm.
The Assets under management are directly proportional to the performance of the financial institution. Better performance of the institution would imply more assets under management. Certain financial institutions include bank deposits, mutual funds, and cash while calculating their assets under management, while the others include only the funds under discretionary management, wherein the investor assigns authority to the company to trade on his behalf.
The respective fund managers manage these assets and make decisions related to the investments on behalf of all the investors. AUM is basically known to indicate the size and success of the fund house.
Also Read: What is an Asset Management Company
Why is AUM Important?
Since the assets under management define the size and success of a company, it is important that investors consider them before making any investment choices. The value of AUM of a company also includes the returns that a mutual fund earns, hence can be easily compared with its peers. If a fund’s AUM is higher, it can be an indicator that the fund is doing well and the investor may consider investing in it.
However, the value of AUM cannot be the only factor to be considered while making the decision of investing in the fund. Expense ratio, Fund managers, previous years’ returns, etc. are some factors that should be of concern.
Fund houses use different methods to calculate the assets under management of a company. When the fund gives positive returns, the overall investments made in the fund will rise, leading to an increase in the number of investors in the fund and hence, increase in assets under management.
Similarly, if the fund consistently gives negative returns, it will lead to a decrease in assets under management of the company. Likewise, if the fund closes unexpectedly, or if an investor redeems his/her share, the fund’s value will decrease. Assets under management also include the shares held by the company’s executives.
However, it must be noted that the value of assets under management is never constant. It changes, depending upon the flow of investor money in and out of the fund. Increased investor inflows, capital appreciation, and reinvested dividends affect the AUM of a fund positively. Along with this, the asset performance also affects the value of assets under management.
AUM in Mutual Fund
Higher AUM does not always indicate positive performance of an equity fund. Different types of mutual funds function differently on the changes in the value of AUM.
It is the fund manager who is responsible for exploiting the market opportunities at the right time, in the right manner. It is, therefore, suggested that investors consider the performance of the fund against its benchmark and competitors before investing.
AUM of the Top-Performing Funds 2020
Following are a few of the top performing funds in 2020 along with their Assets under management.
|Axis Bluechip Fund
|Kotak Standard Multicap Fund
|HDFC Small Cap Fund
|Franklin India Prima Fund
|Axis Long Term Equity Fund
FAQs on Assets Under Management
Q. What is the difference between AUA and AUM?
A. AUA refers to Assets Under Administration, which is a term used for total assets for which a financial institution or any individual provides administrative services for. The assets are owned by the clients only. Fund accounting, tax reporting, trade reporting, etc are some of the services offered by asset administrators. In case of AUM, the assets are managed by professionals, who make investment decisions on behalf of the client.
Q. What is an Asset Under Management fee?
A. An AUM fee refers to a fee charged by financial advisors, mutual fund advisors, and other financial professionals, for managing the assets of the investors. In case of mutual fund schemes, this fee is known as expense ratio, which is a percentage of your investment charges for managing your assets.
Q. How does AUM affect mutual fund returns?
A. Market fluctuations affect the valuation of AUM greatly, since returns from equity allocation are a part of AUM. If the AUM increases or decreases significantly, it impacts the Net Asset Value of the fund, which in turn impacts the mutual fund returns.
Q. How does AUM affect portfolio turnover?
A. Portfolio turnover refers to how frequently the investment portfolio has been churned, with the purchase and sale of underlying securities. Portfolio Turnover Ratio is a numeric figure to signify this. It is calculated by dividing the lesser of purchase or sale of securities by the average AUM of the portfolio.
For instance, in a given year, if a fund has sold Rs. 200 crore worth of equity securities and bought Rs. 300 crore worth of securities, and the average AUM of the fund is Rs. 800 crore, then PTR would be 200/800, which would be equal to 25%. This essentially means that the investment portfolio has been churned 25% in the given year.