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While picking out a mutual fund scheme to invest, we analyze many a thing like investment objective of the fund, performance consistency, expense ratio, and many. We also consider the size of the fund or AUM (Assets Under Management), while picking a fund to invest, but here the fact is the fund size or AUM is either given too much importance or paid no heed to at all.
It's much better if we say that AUM is the least understood of fund selection parameters.
Investors are often confused, why it is necessary to analyze the size of the fund before investing. It is vital to have a complete idea about the fund size and AUM of Mutual Funds to invest wisely and profitably.
Through this article let us know what is AUM (Assets Under Management) all about.
What is AUM?
AUM or Assets Under Management is taken as the total market value of the assets that are being managed by the mutual fund scheme. In other words, it can be defined as the overall value of the capital held by the mutual fund scheme in the current market. The asset in the mutual fund scheme is managed by fund managers, who take all decisions, regarding the scheme on behalf of investors.
AUM is important to analyze as it helps an investor to know precisely about the mutual fund scheme. How a fund house has performed as compared to its competitors is also reflected by the size of funds or Assets Under Management. Investors can also get to know about the returns offered by the mutual fund scheme by analyzing its AUM.
Now the question is, should one consider Assets Under Management while investing in mutual funds?
This decision depends upon the type and size of the fund you are investing in-
For Equity Funds
For successful investing in equity mutual funds, investors are advised to focus on the fund’s consistency in generating returns and how well does it go with the investment mandates.
AUM stands with very little importance while investing in equity mutual funds. The consistency of returns is reflected by how well a mutual fund performs during market fluctuations. Thus, an equity mutual fund is considered to be good if it positively generates appreciable and consistent returns irrespective of the fund size.
For Debt Funds
Debt mutual funds depend highly on their AUM to manage their returns and dividends to investors. A debt mutual fund with a large asset under management is in a better position to distribute fixed fund expenses across its investors. A large fund size would mean a lower expense ratio per person which in turn gets reflected in the fund returns.
Impact of Higher Assets Under Management on Mutual Funds
Well, the mutual fund works independently of the fund size. There is no rule in mutual funds like higher assets under management would have their impact on the behavior or performance of specific mutual funds. Different types of mutual funds behave differently with higher assets under management.
Mainly the performance and returns from mutual fund depend, on the skill set of the fund manager who manages the funds by making the right decisions at the right time of entering or exiting a mutual fund.
Assets Under Management (AUM) reflects the overall market capitalization of a mutual fund. Although it holds low importance than other parameters, used while selecting a fund scheme to invest, it is necessary to analyze the AUM of the fund before investing. It acts as a source to map the popularity of a mutual fund that can be helpful to you while selecting a mutual fund to invest.
For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).