Importance of Mutual Fund Size (AUM) in Investing

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Importance of Mutual Fund Size

Talking about the different considerations that helps in figuring out the selection of a mutual fund, AUM or the fund size is either given too much priority OR not at all. Quite safe to mention, AUM is not so understandable in the fund parameters. Let’s figure out a bit more about AUM. 

What is AUM? 

AUM or Assets Under Management is the total market value of the asset(s) being managed by the mutual fund. To simplify, AUM is the overall value of the capital upheld by a mutual fund in the (current) market. Also, these are managed by the fund manager who takes the decisions regarding the fund on the behalf of an investor.  

A Bit More 

AUM is known as a useful element for having insights into the fund house & its success. The performance of fund house; any fluctuations or information regarding the fund is reflected by AUM. The insights can also be taken care of whilst getting into the returns earned by mutual funds with the help of AUM. The earning can be utilized as: 

  • Re-investing in securities for further earnings. 
  • Distributing investors as dividend. 
  • Holding(s) as per investment mandate. 

Above mentioned actions depend upon the underlying company & the growth strategy of the fund house.  

The question is: Should you consider AUM while investing? 

Decision is on the size and type of the fund you are investing in, here:  

  • Equity FundsIf you are planning to invest in equity funds, then, focus must be on the consistency of the returns the fund is generating & how well it is complying with the investment mandates. Also, AUM can stand at the back-foot whilst investing in equity mutual funds. The returns consistency is reflected with the performance of market during fluctuations. Therefore, an equity mutual fund is known to be good if it generates positive appreciable & consistent returns irrespective of the rapport or the fund size.  
  • Debt FundsThese funds rely on a high version on their AUM for managing their dividends and returns to investors. Also, a debt fund having larger AUM or fund size is in a better position for distributing fixed fund-expenses across its investors. Precisely, it helps in arranging better the debt issuers with the size.  
  • Mid & Small Cap FundsAUM effects small & mid cap companies. The reason to this is, small-cap companies invest in high-potential companies that are still growing. Buying & selling of shares in high-potential companies becomes a challenge, also, impacting the liquidity.  
  • Large Cap FundsThere is a conception stating that larger the fund, better it is; but it is not proved. Generally, large-cap funds can easily accommodate high Assets Under Management.  

Despite being the part of the financial industry, it does have fundamental difference while compared to other financial services such as investment banking or retail banking. The operating model of the asset management separates management companies from the asset, ensuring that assets are supervised and held independently via depositories and custodians. An  Asset Management company  offers investors with different mutual fund scheme to invest. They then invest the money received from investors by investing in different asset classes.  

Furthermore, you can read more about AUM here: https://www.gulaq.com/top-asset-management-companies-in-india/ 

Looking to invest? Hop on to gulaq.com and start investing in direct mutual funds. Furthermore, you can also get in touch: [email protected]      


*Disclaimer: investment in securities market are subject to market risks, read all the related documents carefully before investing

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